Merrill Corporation, which uses private enterprise GAAP, enters into a six-year lease of machinery on September 13,

Question:

Merrill Corporation, which uses private enterprise GAAP, enters into a six-year lease of machinery on September 13, 2011, that requires six annual payments of $28,000 each, beginning September 13, 2011. In addition, Merrill guarantees the lessor a residual value of $17,000 at lease end. The machinery has a useful life of six years. Prepare Merrill’s September 13, 2011 journal entries, assuming an interest rate of 9%.