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On January 1, 2020, Zaragoza Towers Corporation signed a 7-year, non-cancelable lease for a machine

Accounting

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On January 1, 2020, Zaragoza Towers Corporation signed a 7-year, non-cancelable lease for a machine. The terms of the lease called for lessee to make annual payments to Zaragoza at the beginning of each year, starting January 1, 2020. The fair value of the machine is €350,000 and the cost is €275,000. The machine has an estimated useful life of 7 years and a €19,000 residual value. Residual value may vary at the end of the lease contract regarding the market conditions. The machine reverts back to Zaragoza at the end of the lease term. Zaragoza wants to earn a 5% rate-of-return from this lease.

Instructions

a. Compute the present value of the lease payments.

b. Prepare the amortization schedule.

c. Prepare all necessary journal entries for Zaragoza for this lease through December 31, 2020