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Amount of lease liability and right-of-use asset for dexter

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Problem: Cullumber Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2017. The lease is for an 8-year period and requires equal annual payments of $33,300 at the beginning of each year. The first payment is received on January 1, 2017. Cullumber had purchased the machine during 2016 for $140,000. Collectibility of lease payments by Cullumber is probable. Cullumber set the annual rental to ensure a 4% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Cullumber at the termination of the lease. Assume that Dexter Corporation does not know the rate implicit in the lease used by Cullumber, and Dexter's incremental borrowing rate is 6%. In addition, assume that Dexter incurs initial direct costs of $10,000

Required:

Question 1: Compute the amount of the lease liability and right-of-use asset for Dexter.

Question 2: Prepare all necessary journal entries for Dexter for 2017.

Reference no: EM132418895

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