Assume IBM leased equipment that was carried at a cost of $150,000 to Swander Company. The term

Question:

Assume IBM leased equipment that was carried at a cost of $150,000 to Swander Company. The term of the lease is 6 years beginning January 1, 2008, with equal rental payments of $30,677 at the beginning of each year. All executory costs are paid by Swander directly to third parties. The fair value of the equipment at the inception of the lease is $150,000. The equipment has a useful life of 6 years with no . The lease has an implicit interest rate of 9%, no bargain purchase option, and no transfer of title. Collectibility is reasonably assured with no additional cost to be incurred by IBM. Prepare IBM’s January 1, 2008, journal entries at the inception of the lease.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...