Diablo Company Leased a Machine from Juniper Corporation on January

question 229

Essay

Diablo Company leased a machine from Juniper Corporation on January 1, 2018. The machine has a fair value of $20,000,000. The lease agreement calls for four equal payments at the end of each year in the amount of $6,309,410. The useful life of the machine was expected to be four years with no residual value. The appropriate interest rate for this lease is 10%.
Required:
Round your answers to the nearest whole dollar amounts.
1. Prepare the journal entry for Diablo Company at the beginning of the lease.
2. Prepare the journal entry for the first lease payment (ignore amortization).
3. Prepare the journal entry for the second lease payment (ignore amortization).

---

Definitions:

Short-run

A timeframe in economics during which at least one factor of production is fixed and cannot be changed.

MC

is an abbreviation for Marginal Cost, which represents the change in total cost that arises when the quantity produced is incremented by one unit.

ATC

Average Total Cost is determined by dividing the total production expense by the output quantity.

Perfectly Competitive Firm

A firm that operates in a market where there are many buyers and sellers, the products are homogeneous, and no single buyer or seller can influence the market price.