Problem - Bush, Inc. leases a knowledge machine from Clinton Leasing Inc. on December 31,2008. The following dad is available regarding the lease:
1. The term of the lease is 3 years with renewal option of bargain purchase option.
2. The annual lease payments of $72618.82 are due on 12/31 of each year beginning with dec 31, 2008. Include in the above amount $5000.00 of executory costs.
3. Bush's incremental borrowing rate is 15% and Clinton's is 10% which is known by the lessee. The following present value factors for 3 period are available:
PV of an ordinary annuity: 10% is 2.48685, 15% is 2.28323
PV of an annuity due: 10% is 2.73554, 15% is 2.6571
PV of a lump sum: 10% is .75132, 15% is .65752
4. The fair value of the equipment was $200,000. The useful life of the equipment is 4 years. The salvage value of the equipment is guaranteed and is 20,000. The Equipment is depreciated under the straight line method.
Required -
Prepare an amortization table for the lessee in good form.
Prepare all journal entries for 2008 & 2009 to record the lease, the lease payments, and depreciation.