$1$

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G

At January $1,2024,$ Widget World Corporation leased manufacturing equipment from Clinton Corporation under a $6-$year lease agreement. The lease agreement specifies annual payments of $$25,000$ beginning January $1,2024,$ the beginning of the lease, and on each December $31$ thereafter through $2031.$ The equipment was acquired recently by Clinton at a cost of $$146,163($its fair value$)$ and was expected to have a useful life of $8$ years with no salvage value at the end of its life. Because the lease term is only $6$ years, the asset does have an expected residual value at the end of the lease term of $$28,000.$ Clinton seeks a $7\%$ return on its lease investments. By this arrangement, the lease is deemed to be a finance lease.

Lease date

Annual lease payments

Lease term

Useful life of equipment

Residual value at end of lease term

Clinton's implicit interest rate

$$25,000$

#

$3$

$14$

$15$

$16$

$17$

$181.$ Determine the present value of the lease using Excel's PV function.

$$119\mathrm{.}163$

$2.$ Prepare the journal entry for Widget World Corporation at the beginning of the lease on January $1,2024.$

$\backslash$table$[[$Date$,$General Journal,Debit,Credit$],[$January $1,2024,$Right$-$of$-$use asset,C$,119,163,,,],[,$Lease payable,ddots,,$119,163,,]]$

Graded Worksheet

At January $1,2024,$ Widget World Corporation leased manufacturing equipment from Clinton Corporation under a $6-$year lease agreement. The lease agreement specifies annual payments of $$25,000$ beginning January $1,2024,$ the beginning of the lease, and on each December $31$ thereafter through $2031.$ The equipment was acquired recently by Clinton at a cost of $$146,163($its fair value$)$ and was expected to have a useful life of $8$ years with no salvage value at the end of its life. Because the lease term is only $6$ years, the asset does have an expected residual value at the end of the lease term of $$28,000.$ Clinton seeks a $7\%$ return on its lease investments. By this arrangement, the lease is deemed to be a finance lease.

$\backslash$table$[[$Lease date,,$],[$Annual lease payments,#############$,],[$Lease term,$$25,000,],[$Useful life of equipment,$6,$years$],[$Residual value at end of lease term,$8,$years$],[$Clinton$\text{'}$s implicit interest rate,$$28,000,]]$

Determine the present value of the lease using Excel's PV function.

Prepare the journal entry for Widget World Corporation at the beginning of the lease on January $1,2024.$

$\backslash$table$[[$Date$,$General Jo$,,$Debit,Credit$],[$January $1,2024,$Right$-$of$-$use asset,O$),119,163,],[,$Lease payable,$,,119,163]]$

Graded Worksheet

Workbook Statistics

$83F$

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