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DELL Question #2 See the Time Value of Money Table Attached at Back of Exam On January 1, 2017, Andres Inc. signed a 6-year non-cancelable lease for a printing press. The terms of the lease called for Andres to make annual payments of $54,291.43 at the beginning of each year, starting January 1, 2017. The printing press has an estimated useful life of 6 years and a $10,000 unguaranteed residual value. The printing press reverts back to the lessor at the end of the lease term. Andres uses the straight-line method of depreciation for all of its plant assets. Andres h incremental borrowing rate of 12%, and the lessor's implicit rate is unknown. Requirec (a) Compute the present value of the minimum lease payments; round to nearest whole dollar. (b) Prepare all necessary journal entries for Andres for this lease through December 31,2018 again you can round your entries to nearest whole dollar.. as an

Answer 1

Period	Discount rate@12%
0	1.00000
1	0.89286
2	0.79719
3	0.71178
4	0.63552
5	0.56743
Total (0 to 5)	4.60478
Discount rate is Lower of Lessee's Incremental borrowing rate and lessor's Implicit rate if known to the lessee.
Here, Lessee is unknown implicit rate of the lessor. Discount rate is Incremental borrowing rate

	Amount	PV factor	Present value
Lease	$ 54,291.43	4.60478	250,000
Present value of minimum lease payment			$        250,000

without rounding

Lease amortization table - lessee
Date	Beginning balance of lease payable	Lease payment	Interest expense (beginning balance of lease payable *12% )	Reduction in lease payable (lease payment - interest expense)	Beginning balance of lease payable (beginning balance of lease payable - reduction in lease payable)
Jan 1, 2017	$      250,000.00	$        54,291.43		$            54,291.43	$                             195,708.57
Jan 1, 2018	$      195,708.57	$        54,291.43	$                23,485.03	$            30,806.40	$                             164,902.17
Jan 1, 2019	$      164,902.17	$        54,291.43	$                19,788.26	$            34,503.17	$                             130,399.00
Jan 1, 2020	$      130,399.00	$        54,291.43	$                15,647.88	$            38,643.55	$                               91,755.45
Jan 1, 2021	$        91,755.45	$        54,291.43	$                11,010.65	$            43,280.78	$                               48,474.67
Jan 1, 2022	$        48,474.67	$        54,291.43	$                   5,816.96	$            48,474.47	$                                          0.20

with rounding

Lease amortization table - lessee
Date	Beginning balance of lease payable	Lease payment	Interest expense (beginning balance of lease payable *12% )	Reduction in lease payable (lease payment - interest expense)	Beginning balance of lease payable (beginning balance of lease payable - reduction in lease payable)
Jan 1, 2017	$            250,000	$              54,291		$                  54,291	$                                   195,709
Jan 1, 2018	$            195,709	$              54,291	$                      23,485	$                  30,806	$                                   164,902
Jan 1, 2019	$            164,902	$              54,291	$                      19,788	$                  34,503	$                                   130,399
Jan 1, 2020	$            130,399	$              54,291	$                      15,648	$                  38,644	$                                     91,755
Jan 1, 2021	$              91,755	$              54,291	$                      11,011	$                  43,281	$                                     48,475
Jan 1, 2022	$              48,475	$              54,291	$                         5,817	$                  48,474	$                                                0

Journal entries
Date	General Journal	Debit	Credit
Jan 1, 2017	Right of use Asset	250,000
	Lease liability		250,000
	(To record the lease)
Jan 1, 2017	Lease liability	54,291
	Cash		54,291
	(to record Lease paid)
Dec 31, 2017	Amortization Expense	41,667
	Right of use Asset		41,667
	(To record Amortization.) (250000/6)
Dec 31, 2017	Interest expense	23,485
	Interest Payable		23,485
	(To record accrued interest expense.)
Jan 1, 2018	Interest Payable	23,485
	Lease liability	30,806
	Cash		54,291
	(to record Lease paid)
Dec 31, 2018	Amortization Expense	41,667
	Right of use Asset		41,667
	(To record Amortization.) (250000/6)
Dec 31, 2018	Interest expense	19,788
	Interest Payable		19,788
	(To record accrued interest expense.)