Question

Surplus Mining Company has leased a machine from Craft Machinery Company. The annual payments are $6,000 and the life of the lease is 8 years. It is estimated that the useful life of the machine is 9 years. How would Surplus Mining record the acquisition of the machine

Answer 1

Answer:

The machine would be recorded as an asset, at the present value of the annual cash payments, $6,000 for 8 years

Explanation:

Surplus mining company is leasing the machine at the rate of $6,000 annual payment. So the acquisition of the machine will be recorded as an asset and it will reflect for the 8 years it was leased for in the books of Surplus mining.

The annual cash payments will be considered when this entry is being recorded, and it will be at the present value of annual cash payments of the $6,000 for 8 years.