On December 31, 2019, JB Corporation signed a 6-year, non-cancelable lease for a machine. The terms of the lease called for JB to make annual payments of $12,108 at the beginning of each year, starting December 31, 2019. The machine has an estimated useful life of 8 years and a $6,000 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. JB uses the straight-line method of depreciation for all of its plant assets. JB’s incremental borrowing rate is 8%, and the lessor’s implicit rate is unknown.
(Round all numbers to the nearest dollar.)
(a) What type of lease is this? Explain.
(b) Compute the present value of the lease payments.
(c) Prepare all necessary journal entries for JB for this lease through December 31, 20 .
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