Diablo Company leased a machine from Juniper Corporation on January 1, 2013. The machine has a fair value of $20,000,000. The lease agreement calls for four equal payments at the end of each year. The useful life of the machine was expected to be four years with no residual value. The appropriate interest rate for this lease is 10%.
Other information:
PV of an ordinary annuity @10% for 4 periods: 3.16987
PV of an annuity due @ 10% for 4 periods: 3.48685
Required:
1. Determine the amount of each lease payment.
2. Prepare the journal entry for Diablo Company at the inception of the lease.
3. Prepare the journal entry for the first lease payment.
4. Prepare the journal entry for the second lease payment.

Question

Quizplus · Accepted Answer

The Answer of Diablo Company leased a machine from Juniper Corporation on January 1, 2013. The machine has a fair value of $20,000,000. The lease agreement calls for four equal payments at the end of each year. The useful life of the machine was expected to be four years with no residual value. The appropriate interest rate for this lease is 10%.
Other information:
PV of an ordinary annuity @10% for 4 periods: 3.16987
PV of an annuity due @ 10% for 4 periods: 3.48685
Required:
1. Determine the amount of each lease payment.
2. Prepare the journal entry for Diablo Company at the inception of the lease.
3. Prepare the journal entry for the first lease payment.
4. Prepare the journal entry for the second lease payment.

Diablo Company Leased a Machine from Juniper Corporation on January