Problem Lessee No Guaranteed Residual Value
Z Company enters into a lease agreement with F Co on Jan to lease a machine to be used in its
manufacturing operations. The following data pertain to this agreement.
a The term of the noncancelable lease is years, with no residual value at the end of the lease term.
Payments of $ are due on Dec. of each year. The first payment in advance is paid on Jan.
b The fair value of the machine on Jan is $ The machine has an economic life of years, with no
salvage value. The machine reverts to the lessor upon the termination of the lease.
c and company use the straightline method to depreciate equipment.
d Zs incremental borrowing rate is and the implicit rate is unknown.
Required:
Is this a capital lease or operating lease. Why?
Instructions: Prepare journal entries on the books of the lessee through the Life of the lease
The accounting period of and Company ends on December
