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Question: Montana Company signs a five-year capital lease with Elway Company for office equipment. The annual lease payment is $20,000, and the interest rate is 8%.

Required: 1. Compute the present value of Montana's five-year lease payments.

2. Prepare the journal entry to record Montana's capital lease at its inception.

3. Complete a lease payment schedule for the five years of the lease with the following headings. Assume that the beginning balance of the lease liability (present value of lease payments) is $79,854.

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4. Use straight-line depreciation and prepare the journal entry to depreciate the leased asset at the end of year 1. Assume zero salvage value and a five-year life for the office equipment.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M92343534
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