Essay
Kate Co. leased a warehouse from Big Dave Industries on July 1, 2018, in a finance lease. The present value of the lease payments discounted at 10% was $160,000. Ten annual lease payments of $24,000 are due each July 1, beginning July 1, 2018. Big Dave had constructed the equipment recently for $132,000 and its retail fair value was $160,000.
Required: Assuming that control of the warehouse is transferred to KateCo at the beginning of the lease. Prepare the two journal entries to record the lease by Big Dave at July 1, 2018.
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