Question

Peters Company leased a machine from Johnson Corporation on January 1, 2021. The machine has a fair value of $29,000,000. The lease agreement calls for four equal payments at the end of each year. The useful life of the machine was expected to be four years with no residual value. The appropriate interest rate for this lease is 10%.

Other information:

PV of an ordinary annuity @10% for 4 periods: 3.16987
PV of an annuity due @10% for 4 periods: 3.48685

Required:
1. Determine the amount of each lease payment.
2. Prepare the journal entry for Peters Company at the beginning of the lease.
3. Prepare the journal entry for the first lease payment (ignore amortization).
4. Prepare the journal entry for the second lease payment (ignore amortization).

Answer 1

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