(Lessee Entries; Capital Lease with Unguaranteed Residual Value) On January 1, 2014, Manor Inc. signed a 6-year noncancelable lease for a printing press. The terms of the lease called for Manor to make annual payments of $54,291 at the beginning of each year, starting January 1, 2014. 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. Manor uses the straight-line method of depreciation for all of its plant assets. Manor's incremental borrowing rate is 12%, and the Lessor's implicit rate is unknown.
Instructions
(a) What type of lease is this? Explain.
(b) Compute the present value of the minimum lease payments.
(c) Prepare all necessary journal entries for Manor for this lease through January 1, 2015.