Problem - On January 1, 2017, Blossom Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Blossom to make annual payments of $8,560 at the beginning of each year, starting January 1, 2017. The machine has an estimated useful life of 6 years and a $4,800 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Blossom uses the straight-line method of depreciation for all of its plant assets. Blossom's incremental borrowing rate is 10%, and the lessor's implicit rate is unknown.
Compute the present value of the minimum lease payments.
Prepare all necessary journal entries for Blossom for this lease through January 1, 2018.