Concept based on straight-line method of depreciation


On January 1, 2011, Dunn Corporation signed a ten-year non-cancelable lease for certain machinery. The terms of the lease called for Dunn to make annual payments of $100,000 at the end of each year for ten years with title to pass to Dunn at the end of this period.

The machinery has an estimated useful life of 15 years and no salvage value. Dunn uses the straight-line method of depreciation for all of its fixed assets. Dunn accordingly accounted for this lease transaction as a capital lease. The lease payments were determined to have a present value of $671,008 at an effective interest rate of 8%. With respect to this capitalized lease, what journal entries should Dunn record for 2011?

Request for Solution File

Ask an Expert for Answer!!
Accounting Basics: Concept based on straight-line method of depreciation
Reference No:- TGS080476

Expected delivery within 24 Hours