Problem 1. Watt Financing leased a packing machine to Nuts Company. The noncancelable lease requires lease payments of $50,000 per year, payable in advance, over a five-year period. Nuts' incremental borrowing rate is 13%. Watts implicit interest rate (known to Nuts) is 11%. The lease term begins on January 1, 2019. The machines economic life is 10 years with a cost of $200,000 and fair value of $235,000. The collectability of the lease payments is probable for the lessor. Assuming that there is a guaranteed residual value of $20,000 to Watt.

Instructions

1. Same as Problem 1. Assuming that there is a bargain purchase option of $20,000 for Nuts.

Instructions

Provide the journal entries required on both Watt's and Nuts' books through December 31, 2020.

2. Same as Problem 1. Now assuming that the residual value of $20,000 is NOT guaranteed.

Instructions

Provide the journal entries required on both Watt's and Nuts' books through December 31, 2020?