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PSYCHO15rus [73]
2 years ago
8

Windsor Company leased equipment from Costner Company, beginning on December 31, 2019. The lease term is 4 years and requires eq

ual rental payments of $87,122 at the beginning of each year of the lease, starting on the commencement date (December 31, 2019). The equipment has a fair value at the commencement date of the lease of $320,000, an estimated useful life of 4 years, and no estimated residual value. The appropriate interest rate is 6%.
Prepare Windsor’s 2019 and 2020 journal entries, assuming Windsor depreciates similar equipment it owns on astraight-line basis
Business
1 answer:
salantis [7]2 years ago
3 0

Answer:

The journal entries to prepare would be the following:

31/12/2019

Right of use assets      $320,000

                      Lease liability                    $320,000

31/12/2019

Lease liability       $ 87,122

                         Cash                       $87,122

31/12/2020

Lease liability      $73,149

Interest Expense $13,973

                        Cash                          $87,122

31/12/2020

Amortization          $80,000

                         Right of use assets   $ 80,000

Explanation:

According to the given data, we first have to calculate the PV factor of annuity due for 4 years at 6% discount = 3.67301

Therefore, PV of annual lease payment = Lease liability = 3.67301 * 87122 = $320,000

Next, according to given data First lease payment on 31/12/2019 = $87,122

Hence,Lease liability as on (after first lease payment) 31/12/2019 = 320000 - 87122 =$232,878

So, the Interest expense for 2020 = 232,878 * 6% = $13,973 and the Amortization/depreciation per year = 320000 / 4 = $80,000

Therefore, the journal entries to prepare would be the following:

31/12/2019

Right of use assets      $320,000

                      Lease liability                    $320,000

31/12/2019

Lease liability       $ 87,122

                         Cash                       $87,122

31/12/2020

Lease liability      $73,149

Interest Expense $13,973

                        Cash                          $87,122

31/12/2020

Amortization          $80,000

                         Right of use assets   $ 80,000

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The Question is incomplete.

The complete question is as follows:

It announces that it plans to pay dividends of $1 per share exactly three years from now and $2 per share exactly four years from now. From year 5 onwards, dividends are expected to grow at a constant rate of 10% per year. The company pays no dividends in years one and two. The risk-free rate is 5%, the company's beta is 1.5 and the expected return on the market is 11%. Calculate the price of this stock today

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Price of stock =  $34.42

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<em>The Dividend Valuation Model is a technique used to value the worth of an asset. According to this model, the worth of an asset is the sum of the present values of its future cash flows discounted at the required rate of return.</em>

Required rate of return

Using the CAPM , the rate of return on equity can be determined as follows:

E(r)= Rf +β(Rm-Rf)

E(r) =? , Rf- 5%, Rm- 11%, β- 1.5

Ke = 5% + 1.5× (11-5)%

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3                       $1.00, × (1.14^(-3) =   0.6749

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<em>5 and beyond</em>

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