Merrill Corporation, which uses private enterprise GAAP, enters into a six-year lease of machinery on September 13, 2011

Merrill Corporation, which uses private enterprise GAAP, enters into a six-year lease of machinery on September 13, 2011, that requires six annual payments of $28,000 each, beginning September 13, 2011. In addition, Merrill guarantees the lessor a residual value of $17,000 at lease end. The machinery has a useful life of six years. Prepare Merrill’s September 13, 2011 journal entries, assuming an interest rate of 9%.

Leased Machinery........................ 147,047

    Lease Obligation....................           147,047

Using tables:

     PV of rentals  $28,000 X 4.88965  $136,910

    [PV of guar. RV $17,000 X  .59627    10,137

                                       $147,047

Excel formula =PV(rate,nper,pmt,fv,type)

Using a financial calculator:
PV	$   ?	Yields  $147,047
I	9%
N	6
PMT	$ 28,000
FV	$ 17,000
Type	1

Lease Obligation........................  28,000

    Cash................................            28,000