Question

Wilson foods corporation leased a commercial food processor on september 30, 2018. the five-year finance lease agreement calls for wilson to make quarterly lease payments of $195,774, payable each september 30, december 31, march 31, june 30, with the first payment at september 30, 2018. wilson's incremental borrowing rate is 12%. wilson records amortization on a straight-line basis at the end of each fiscal year. wilson recorded the lease as follows:

Answer 1

The journal entry to record the lease would be:

Debit Credit

Asset $3,000,000

Lease Payable $3,000,000

Debit Credit

Lease Payable $195,774

Cash $195,774

Step-by-step explanation:

To prepare the journal entry to record the lease we would have to calculate the present value of lease payments as follows:

present value of lease payments=$195,774*15.32380=$3,000.000

Therefore, the journal entry to record the lease would be:

Debit Credit

Asset $3,000,000

Lease Payable $3,000,000

Debit Credit

Lease Payable $195,774

Cash $195,774