Chambers Leased Equipment to Montga Company on November I,2010 Montga Uses Straight-Line Depreciation for Its Property,plant,and Equipment

question 95

Essay

Chambers leased equipment to Montga Company on November I,2010. The terms of the lease are as follows:
$$\begin{array} { | l | l | } \hline \text { Lease term } & 10 \text { years } \\\hline \text { Economic life of leased asset } & 12 \text { year } \\\hline \text { Fair value of leased asset } & 104,000 \\\hline \text { Guaranteed residual value } & 10,000 \\\hline \text { Lease payments, due each Nov 1 } & 12,000 \\\hline \text { Lessee's incremental borrowing rate } & 5 \% \\\hline\end{array}$$ Montga uses straight-line depreciation for its property,plant,and equipment.
Requirements:
a. Prepare the journal entries for the lease from November 1 through December 31,2010.
b. You and the director of finance for Montga Company. You are concerned about the impact the lease will have on your key performance indicator,the total debt to total assets ratio. Discuss the impact the lease will have on this performance indicator.

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An American molecular biologist, geneticist, and zoologist, co-discoverer of the structure of DNA with Francis Crick.

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