20 years. The lease is non-cancelable
The following information pertains to the agreement
1. The fair value of the equipment on January 1, 2020 is $850,000
2 The estimated economic life of the equipment was 25 years on January 1, 2020 with guaranteed residual value of $25,000 3 The lease is non-renewable At the termination of the lease, the equipment reverts to the lessor
4 The lessor's implicit rate is 10% which is known to Sitra Sitra's incremental borrowing rate is 12% (The PV of $1 for 20 periods at 10% is 0.14864 and the PV for
an ordinary annuity of $1 for 20 periods at 10% is 8 51356)
5 Sitra uses straight-line method for depreciation
Instructions:
A) Compute the present value of minimum lease payments
B) Prepare all necessary journal entries on the lessee's books for the year 2020
