On January 1, 2008, Burke Corporation signed a 5-year non- cancelable lease for a machine. The terms

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On January 1, 2008, Burke Corporation signed a 5-year non- cancelable lease for a machine. The terms of the lease called for Burke to make annual payments of $8,668 at the beginning of each year, starting January 1, 2008. The machine has an estimated useful life of 6 years. The machine reverts back to the lessor at the end of the lease term. Burke uses the straight-line method of depreciation for all of its plant assets. Burke’s incremental borrowing rate is 10%, 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 Burke for this lease through January 1, 2009.

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Intermediate Accounting principles and analysis

ISBN: 978-0471737933

2nd Edition

Authors: Terry d. Warfield, jerry j. weygandt, Donald e. kieso

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