Traditionally purchased all of its manufacturing equipment

Assignment Help Financial Accounting

Reference no: EM131288038

Terry has traditionally purchased all of its manufacturing equipment. However, in Year 2 they were unable to find a vendor willing to sell them a new $750,000 machine. After some careful negotiations, however, they were able to lease the needed equipment for 5 years. At the end of the lease Terry will have the option to purchase the equipment for $110,000, the estimated fair value at the end of the lease. They plan to exercise the option and keep the equipment. The machine has an estimated economic life of 7 years with no salvage value. The payments on the lease will be $164,982. Terry does not know the implicit interest rate used by the vendor, but their incremental interest rate is 7%. The lease period began on June 1, Year 2. The first payment was due on that day. Subsequent payments will be made each year on May 31st. Terry has decided to keep all of its accumulated depreciation in one account rather than create a separate account for leased assets.

Make the appropriate journal entries, if any, to account for the lease including any necessary changes to income tax expense if the tax rate is 25%?

Reference no: EM131288038

Questions Cloud

List five countries known to be democratic : List five countries known to be democratic. What do we mean by "Scientific Socialism"? List the main principles incorporated in the liberal -bourgeois ideology.

Determine the annual exclusion : Determine the taxable gift in each of the following unrelated scenarios: Determine the items exempt from gift tax that were paid by Yancey: Determine the annual exclusion in each of the following unrelated scenarios:

Which depreciation method is better for a company to use : Which depreciation method is better for a company to use? Why? How does each depreciation method affect the financial statements? City Electrical Distributor is looking for a new line of 60 watt solar panels to retail for $150.00. If management wants..

Estimate the value of this parking garage property : You have been hired to evaluate for appraisal a parking garage with 196 spaces.Each space rents for $85 per month or $5 per day (both values are for weekday parking only). There are eight holidays (assume they are weekdays) per year that parking is e..

Traditionally purchased all of its manufacturing equipment : Terry has traditionally purchased all of its manufacturing equipment. However, in Year 2 they were unable to find a vendor willing to sell them a new $750,000 machine. After some careful negotiations, however, they were able to lease the needed equip..

Americans with disabilities act : Continuing with the assumptions from the previous discussion, as the human resources training professional, you have trained hiring managers about the importance of some employment laws. After your training, you have asked managers to provide feed..

Importance of a common european currency to firms : Identify different types of barrier to the free movement of goods and services.- Explain the importance of a common European currency to firms selling goods to the European market.

Variable overhead spending variance using formula approach : Standish Company manufactures consumer products and provided the following information for the month of February: Calculate the variable overhead spending variance using the formula approach. Calculate the variable overhead efficiency variance using ..

Stress in the workplace as a result of conflict : How you would suggest management and employees should manage stress in the workplace as a result of conflict, change and other working conditions.

User Account

All Pages