Question

# Technoid Inc. sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2021....

Technoid Inc. sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2021. The manufacturing cost of the computers was \$12 million.

This noncancelable lease had the following terms:

Lease payments: ????????? semiannually; first payment at January 1, 2021

; remaining payments at June 30 and December 31 each year through June 30, 2025.

Lease term: five years (10 semiannual payments).

residual value \$500,000; And the lessee guaranteed a residual value of \$600,000

Economic life of equipment: 6 years.

Implicit interest rate and lessee's incremental borrowing rate: 5% semiannually.

Fair value of the computers at January 1, 2021: \$20 million.

1. Calculate the lease payment? Show all calculations
2. Prepare the journal entries by lessee on the date of lease inception

#### Homework Answers

Answer #1
 Computation of Annual Rental Payment Fair Value \$20,000,000.00 Less: Residual Value ( 600000X Pvif @ 5%, 10) (600000 X0.613913254) -\$368,347.95 Amount to be recovered a) \$19,631,652.05 CUMM PVF @ 5% for 0-9 (b) 8.1078 Annual Rental Payment (a/b) \$2,421,329.10
 Date Accoutn Tittle Debit Credit 1-Jan-21 Lease Equipment \$2,000,000.00 Lease Liability \$2,000,000.00 1-Jan-21 Lease Liability \$2,421,329.00 Cash \$2,421,329.00
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