Boxador, Inc. sells and leases large machines. On January 1, 2015, Boxador leased a machine to a local customer. The lease agreement required annual payments of $12,000 beginning January 1, 2015, the inception of the lease, and each year thereafter for a ten-year lease term. The expected technological life of the machine is twelve years. Boxador’s annual interest rate for determining payments was 5%. Boxador had paid a supplier $97,300 for the machine.
Instructions: Show supporting calculations for your answers below.
A) What type of lease is this for Boxador? Why?
B) Prepare the appropriate entries for Boxador on January 1, 2015.
C) Prepare the appropriate entries for Boxador on December 31, 2015, and January 1, 2016.