Question

Wilson foods corporation leased a commercial food processor on september 30, 2018. the five-year finance lease agreement calls for wilson to make quarterly lease payments of $195,774, payable each september 30, december 31, march 31, june 30, with the first payment at september 30, 2018. wilson's incremental borrowing rate is 12%. wilson records amortization on a straight-line basis at the end of each fiscal year. wilson recorded the lease as follows:

Answer 1

Answer:

The journal entry to record the lease would be:

                      Debit        Credit

Asset            $3,000,000

   Lease Payable     $3,000,000

                    Debit        Credit

Lease Payable           $195,774

   Cash     $195,774

Explanation:

To prepare the journal entry to record the lease we would have to calculate the present value of lease payments as follows:

present value of lease payments=$195,774*15.32380=$3,000.000

Therefore, the journal entry to record the lease would be:

                      Debit        Credit

Asset            $3,000,000

   Lease Payable     $3,000,000

                    Debit        Credit

Lease Payable           $195,774

   Cash     $195,774