Question

On December 31, 2019, Kingbird Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Kingbird to make annual payments of $7,924 at the beginning of each year, starting December 31, 2019. The machine has an estimated useful life of 6 years and a $5,200 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Kingbird uses the straight-line method of depreciation for all of its plant assets. Kingbird’s incremental borrowing rate is 5%, and the lessor’s implicit rate is unknown.

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What type of lease is this?

This is a/an select a type of lease operatingfinance lease. Compute the present value of the lease payments. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places e.g. 5,275.) Present value of the lease payments Prepare all necessary journal entries for Kingbird for this lease through December 31, 2020. (Record journal entries in the order presented in the problem. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.) Date Account Titles and Explanation Debit Credit choose a transaction date12/31/1912/31/20 12/31/1912/31/20 enter an account title to record the lease enter a debit amount enter a credit amount enter an account title to record the lease enter a debit amount enter a credit amount (To record the lease) choose a transaction date12/31/1912/31/20 12/31/1912/31/20 enter an account title to record first lease payment enter a debit amount enter a credit amount enter an account title to record first lease payment enter a debit amount enter a credit amount (To record first lease payment) choose a transaction date12/31/1912/31/20 12/31/1912/31/20 enter an account title to record amortization of the right-of-use asset enter a debit amount enter a credit amount enter an account title to record amortization of the right-of-use asset enter a debit amount enter a credit amount (To record amortization of the right-of-use asset) choose a transaction date12/31/1912/31/20 12/31/1912/31/20 enter an account title to record interest expense enter a debit amount enter a credit amount enter an account title to record interest expense enter a debit amount enter a credit amount enter an account title to record interest expense enter a debit amount enter a credit amount (To record interest expense)

Answer 1

Date	Accounts Titles and Explanation	Debit	Credit
12/31/19	Leased Equipment	36,022
	Lease Liability		36,022
12/31/19	Lease Liability	7,924
	Cash		7,924
12/31/20	Depreciation Expense	7,204		($36,022 / 5)
	Accumulated Depreciation - Capital Leases		7,204
12/31/20	Interest Expense	1,405		($36,022 - $7,924) x 5%
	Lease Liability	6,519
	Cash		7,924
Working
The present value of the minimum lease payments			36,022
($7,924 x PVAD of $1)
($7,924 x 4.54595)