In: Accounting
Crane Company, a machinery dealer, leased a machine to Dexter
Corporation on January 1, 2020. The lease is for an 8-year period
and requires equal annual payments of $34,300 at the beginning of
each year. The first payment is received on January 1, 2020. Crane
had purchased the machine during 2019 for $140,000. Collectibility
of lease payments by Crane is probable. Crane set the annual rental
to ensure a 8% rate of return. The machine has an economic life of
10 years with no residual value and reverts to Crane at the
termination of the lease. Assume that Dexter Corporation does not
know the rate implicit in the lease used by Crane, and Dexter’s
incremental borrowing rate is 10%. In addition, assume that Dexter
incurs initial direct costs of $12,000.
Compute the amount of the lease liability and right-of-use asset for Dexter?
Prepare all necessary journal entries for Dexter for 2020.
(To record the lease)
(To record the first lease payment)
(To record interest expense)
(To record amortization of the right-of-use asset)