On January 1 2017 Vaughn Corporation signed a 5year noncance

On January 1, 2017, Vaughn Corporation signed a 5-year noncancelable lease tor a machine. The terms of the lease called for Vaughn to make annual payments ot $8,317 at the beginning of each year, slarling January 1, 2017. The machine has a estiated useful lfe of 6 years and a $5,300 unguaranteed residual value. The machine reverts back lo the lessor at the end of the lease lem. Vaughn uses the straight-line method of depreciation for all of its plant assets. Vaughn\'s incremental borrowing rate is 10%, and the lessor\'s implicit rate is unknown Compute the present value of the minimum lease payments. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to O decimal places e.g. 58,971.) The present value of the minimum lease payments s Prepare all necessary journal entries for Vaughn for this lease through January 1, 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select \"No Entry\" for the account titles and enter O for the amounts. Round answers to 0 decimal places e.g. 58,971.) Date Account Titles and Explanation Debit Credit (To record the leasc.) (To record first payment.)

Solution

1 Computation of present value of minimum lease payments: $8,317 X 4.16986* = $34,680.72562 *Present value of an annuity due of 1 for 5 periods at 10% 2 Date General Journal Debit Credit 01/01/2017 Leased Equipment          34,681 Lease Liability          34,681 Lease Liability            8,317 Cash            8,317 12/31/2017 Depreciation Expense            6,936 Accumulated Depreciation—Capital Leases            6,936 ($34,680.72562 ÷ 5 = $6,936.14512) Interest Expense            2,636 Interest payable            2,636 [($34,680.72562 – $8,317) X .10] 01/01/2018 Lease Liability          10,953 Interest Payable            2,636 Cash            8,317