Reference no: EM132428735

Question - On Jan 1, 2018, Lessee Corp and Lessor Company enter into an agreement whereby Lessee is going to lease an extrusion machine from Lessor for a 4 year period. The parties agree that the machine is worth $50,000 and has an expected useful life of 5 years. The contract term calls for 4 equal payments starting on January 1, 2018. Both parties agree that a financing rate of 4% is reflective of the market for these kinds of deals. Lessee Corp depreciates assets using straight-line depreciation for book purposes. Lessee Corp has the option to purchase the milling machine at the end of the lease term for $6,000. The expected residual value of the milling machine at the time is $10,000.

1. What would the annual lease payment be?

2. Prepare the journal entries for Lessee Corp for the first year (2018) 1/1 and 12/31 (Note: the second payment is the next day)

3. What does the Lessee Corp's balance sheet look like on December 31, 2018 with regard to the equipment and the lease payable? (Note: payment is the next day).