Question

On January 2, 2021, Hanson Leasing Company leases equipment to Foley Co. with 5 equal annual payments of $240,000 each, payable beginning January 2, 2021. Foley Co. agrees to guarantee the $150,000 residual value of the asset at the end of the lease term. The expected value of the residual is $0. Foley's incremental borrowing rate is 10%, however it knows that Hanson's implicit interest rate is 8%. The journal entry Hanson makes at January 2, 2021 includes a debit to right-of-use asset for?
PV Annuity Due PV Ordinary Annuity PV Single Sum
8%, 5 periods 4.31213 3.99271 .68508
10%, 5 periods 4.16986 3.79079 .62092

Answer 1

Answer:

A Journal Entry was Entered for Hanson Leasing Company on January 2, 2021, and Debit to right-of-use asset= 113767

Explanation:

Solution

Given that:

The Journal Entry of Hanson  Leasing Company on January 2, 2012

Equal annual payments =240000

X PV Annuity Due 8%, 5 periods = 4.31213

Present value of Equal annual payments=1034911

Residual value=150000

X PV Single 8%, 5 periods=0.68508

Present value of residual value=102762

Present value of Equal annual payments=1034911

Add: Present value of residual value=102762

Debit to right-of-use asset= 113767