Question

On january 1, 2017, bridgeport corporation signed a 5-year noncancelable lease for a machine. the terms of the lease called for bridgeport to make annual payments of $8,317 at the beginning of each year, starting january 1, 2017. the machine has an estimated useful life of 6 years and a $5,300 unguaranteed residual value. the machine reverts back to the lessor at the end of the lease term. bridgeport uses the straight-line method of depreciation for all of its plant assets. bridgeport's incremental borrowing rate is 10%, and the lessor's implicit rate is unknown.

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Compute the present value of the minimum lease payments.

Prepare all necessary journal entries for bridgeport for this lease through january 1, 2018.

Date.          Account Titles and Explanation.       Debit.           Credit
                   1.
                   2.
                  (To record the lease)
                   1.
                   2.
                  (To record first payment)
Date.           1.
                   2.
                   ( To record depreciation)
                   1.
                   2.
                   ( To record interest)
1/1/18.        1.
                   2.
3.                3.

Answer 1

Answer:-
	Calculation of present value of the minimum lease payments
	Year	Annual Installment	Present Value factor	Present Value
	Jan-17	8,317	1.00	8,317
	Jan-18	8,317	0.91	7,561
	Jan-19	8,317	0.83	6,874
	Jan-20	8,317	0.75	6,249
	Jan-21	8,317	0.68	5,681
		Total		34,681
	Journal Entries in books of bridgeport
Date	Particulars	Debit	Credit
Jan-17	Machine Dr.	34,681
	To Lessor		34,681
	(Being finance lease purchased)
Jan-17	Lessor Dr.	8,317
	To Bank		8,317
	(being first payment done)
Dec-17	Depreciation             Dr.	3,468
	To machine		3,468
	(being depreciation booked)
Dec-17	Finance charge           Dr.	2,636
	To Bank		2,636
	(Being Interest booked)
Jan-18	Lessor Dr.	8,317
	To Bank		8,317
	(being Second year lease payment done)
Dec-18	Depreciation             Dr.	3,468
	To machine		3,468
	(being depreciation booked)
Dec-18	Finance charge           Dr.	2,068
	To Bank		2,068
	(Being Interest booked)
	Amortization Schedule
	Year	Finance lease value	Annual Payments	Interest	Principal	Balance
	Jan-17	34,681	8,317	-	8,317	26,364
	Jan-18	26,364	8,317	2,636	5,681	20,683
	Jan-19	20,683	8,317	2,068	6,249	14,434
	Jan-20	14,434	8,317	1,443	6,874	7,561
	Jan-21	7,561	8,317	756	7,561	-