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On January 1, 2011, Dunn Corporation signed a ten-year non-cancelable lease for certain machinery. The terms of the lease called for Dunn to make annual payments of $100,000 at the end of each year for ten years with title to pass to Dunn at the end of this period.

The machinery has an estimated useful life of 15 years and no salvage value. Dunn uses the straight-line method of depreciation for all of its fixed assets. Dunn accordingly accounted for this lease transaction as a capital lease. The lease payments were determined to have a present value of $671,008 at an effective interest rate of 8%. With respect to this capitalized lease, what journal entries should Dunn record for 2011?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M980476

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