Question

On January 1, 2020, a machine was purchased for $880,000 by Windsor Co. The machine is expected to have an 8-year life with no salvage value. It is to be depreciated on a straight-line basis. The machine was leased to Wildhorse Inc. for 3 years on January 1, 2020, with annual rent payments of $290,000 due at the beginning of each year, starting January 1, 2020. The machine is expected to have a residual value at the end of the lease term of $562,500, though this amount is unguaranteed.

Record the journal entries Wildhorse would record for 2020 on this lease, assuming its incremental borrowing rate is 9% and the rate implicit in the lease is unknown. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.)

Date	Account Titles and Explanation	Debit	Credit
1/1/2012/31/20
	(To record the lease)
1/1/2012/31/20
	(To record lease payment)
1/1/2012/31/20

Answer 1