Saola has traditionally purchased all of its manufacturing equipment. However, in 2022 they wereunable to find a
Question:
Saola has traditionally purchased all of its manufacturing equipment. However, in 2022 they wereunable to find a vendor willing to sell them a new $12,426,000 machine. After some careful negotiations, however, they were able to lease the needed equipment for 5 years. At the end of the lease Saola will have the option to purchase the equipment for $994,000, the estimated fair value at the end of the lease. They currently plan to exercise the option and keep the equipment at the end of the lease,but that could change if they find a better option.The machine has an estimated economic life of 7 years with no salvage value. The payments on thel ease will be $2,412,148. Saola does not know the implicit interest rate used by the vendor, but their incremental interest rate is 6.0%. The lease period began on May 1, 2022 and the first payment was made that day. Subsequent payments will be made each year and should be paid one day before thestart date to ensure that no late penalties are accrued. In addition to the first payment, Saola paid$18,000 in legal and other lease origination fees on May 1, 2022
Make the appropriate journal entries, if any, to account for the lease (including any necessary changes to income tax expense)
Use journal entries as reference and please show calculations
Right of Use Asset | $ 10,788,506 |
Lease Liability | |
Cash | |
31-Dec | |
Interest Expense | |
Lease Liability | |
Amortization Expense | |
Accumulated Amortization | |
Income Tax Payable | |
Income Tax Expense |
International Marketing And Export Management
ISBN: 9781292016924
8th Edition
Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr