Question

On January 2, 2019, Denny Corp. enters into five-year finance lease for machinery with annual year-end payments of $15,000. The present value of the six annual lease payments is $65,000. Complete the necessary journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns. View transaction list Journal entry worksheet On January 2, 2019, Denny Corp. enters into five-year finance lease for machinery with annual year-end payments of $15,000. The present value of the six annual lease payments is $65,000. Note: Enter debits before credits. General Journal Debit Credit Date Jan. 2 Record entry Clear entry View general journal

Answer 1

equipment 65,000 debit

lease liability 65,000 credit

--to record machine under lease agreement---

interest expense 6,610.5 debit

lease liability 6,610.5 credit

-- to record accrued interest--

lease liability 15,000 debit

cash 15,000 credit

Step-by-step explanation:

a) we record considering the present value of the future payment

b) we determinate the discount rate using excel goal seek tool:

`C * (1-(1+r)^(-time) )/(rate) = PV\\`

C 15,000.00

time 6

rate 0.101724917 = 10.17%

`15000 * (1-(1+0.10172)^(-6) )/(0.101722) = PV\\`

PV $65,000.0000

c) at year end we calculate the interest generated for the liability and declare the interest expense

65,000 x 10.17% = 6,610.5

d)Then, we record the payment which decreases the liability.