Reference no: EM133136669
Question - The Manhattan Corporation leased an equipment from Brooklyn company with the following terms:
Lease term is for 5 years while the estimated economic life of the equipment is 10 years.
Annual rent of $100,000 with the first rent is payable on 1/1/2021 and on 12/31/2021 for remaining years.
Assumed interest rate of 10%.
The cost of the machine to Brooklyn is $600,000.
No transfer of title or bargain purchase option was granted at end of lease term.
(PV of Annuity Due n=5 and r=10%: 4.169870)
(PV of Ordinary annuity n=5 and r=10%: 3.79079)
Required -
A. What type of lease is this to both Manhattan and Brooklyn Companies?
B. Make necessary journal entries for the first year of the lease by both Lessee and Lessor.
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