Brow Corp. leased equipment from Rachel Finance, with the following details: Commencement date: January 1, 2019.
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Brow Corp. leased equipment from Rachel Finance, with the following details:
■ Commencement date: January 1, 2019.
■ Term of lease: 4 years.
■ Payments: $45,000 per annum first due at the commencement date.
■ Residual guarantee: $15,000. Expected payout is $5,000.
■ Interest rate implicit in the lease: 5%. Lessee is able to readily determine this.
■ Incremental borrowing rate: 7%.
■ Estimated useful life of equipment: 8 years.
■ Initial direct costs—lessee: $7,000.
■ Depreciation method: Straight-line.
■ Year end: December 31.
Required:
Prepare Brow Corp’s journal entries for 2019 and January 1, 2020.
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