Knight Company purchased a machine on January 1, 2015, for $625,000 for the express purpose of...

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Knight Company purchased a machine on January 1, 2015, for$625,000 for the express purpose of leasing it. Themachine was expected to have a nine-year life from January 1, 2015,to have no salvage value, and to be depreciated on the straightline basis. On April 1, 2015, Knight leased the machineto McCracken Inc. for $150,000 a year for a four-year period endingMarch 31, 2019. The appropriate interest rate is 12%compounded annually. McCracken paid $150,000 to Knighton April 1, 2015. Knight retains title to the propertyand plans to lease it to someone else after the four-year leaseperiod. Both Knight and McCracken use a calendar yearbasis for financial reporting purposes.
Record all entries for 2015 relating to the lease on the booksof Knight.
Record all entries for 2015 relating to the lease on the booksof McCracken.

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First of all we have to know the types of Lease 1 Finance Lease A lease in which all risks and rewards are transferred to the owner of assets The title may or may not eventually be transferred Examples of Finance Lease are 1 Lease in which Assets is transferred to lessee at the end of lease term 2 Lease term in which lessee has the option to purchase the assets form lessor at the price which is lower than fair price on the date when option become exercisable 3 Lease term See Answer

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Knight Company purchased a machine on January 1, 2015, for$625,000 for the express purpose of leasing it. Themachine was expected to have a nine-year life from January 1, 2015,to have no salvage value, and to be depreciated on the straightline basis. On April 1, 2015, Knight leased the machineto McCracken Inc. for $150,000 a year for a four-year period endingMarch 31, 2019. The appropriate interest rate is 12%compounded annually. McCracken paid $150,000 to Knighton April 1, 2015. Knight retains title to the propertyand plans to lease it to someone else after the four-year leaseperiod. Both Knight and McCracken use a calendar yearbasis for financial reporting purposes.Record all entries for 2015 relating to the lease on the booksof Knight.Record all entries for 2015 relating to the lease on the booksof McCracken.