Answered: Journalize the inception of the lease…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Lease Accounting

At the beginning of the year 1 January 2017, PMA, Inc., a rail company leased out diesel generators to GP, Ltd. to provide backup to the transportation system during power outages. The lease has 5-year term in which PMA has to make $500,000 payment to GP at the beginning of each year. Fair value of the equipment is $2,000,000 and has estimated life of 5 years.

Journalize the inception of the lease and the first payment made by PMA in the books of GP (Lessee) if rate of interest in the lease is 8%.

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