Assignment Problem:
On Jan 1, 2018, Lessee Corp and Lessor Company enter into an agreement whereby Lessee is going to lease an extrusion machine from Lessor for a 4 year period. The parties agree that the machine is worth $50,000 and has an expected useful life of 5 years. The contract term calls for 4 equal payments starting on January 1, 2018. Both parties agree that a financing rate of 4% is reflective of the market for these kinds of deals. Lessee Corp depreciates assets using straight-line depreciation for book purposes. Lessee Corp has the option to purchase the milling machine at the end of the lease term for $6,000. The expected residual value of the milling machine at the time is $10,000.
Question 1: What would the annual lease payment be?
Question 2: Prepare the journal entries for Lessee Corp for the first year (2018) 1/1 and 12/31 (Note: the second payment is the next day)
Question 3: What does the Lessee Corp's balance sheet look like on December 31, 2018 with regard to the equipment and the lease payable? (Note: payment is the next day).
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