Question

Use the following information for questions 16-17. Round all calculations to the two decimals. Uptown Inc. entered into an arrangement on January 1, 2017 to lease a machine for four years with lease payments of $85,000 each year with the first payment due immediately and January 1 of each year thereafter. There are no options to extend, terminate, or renew the lease. The lessor requires a return on its leases of this type of 8%, which is the same as Uptown Inc.’s marginal borrowing rate. 16. Assuming that this lease meets the criteria for finance lease treatment and the lessor purchased the machine for $281,530.78 and regularly both sells and leases this type of equipment. Which of the following journal entries should the lessor record on January 1, 2017 (not including receipt of the first lease payment)? Assuming, that the lease qualifies for operating lease treatment, Uptown should record how much amortization expense in 2017? The correct answers is Lease Payable $67,475.74 Interest Expense $17,524.26 Current Lease Payable $85,000 Amortization Exp. $67,475.74 Leased Asset $67,475.74 I just want to know how are they getting it please show your steps

Answer 1

JOURNAL ENTRIES ARE AS FOLLOWS:

16. Lease receivable a/c dr	304053.24
To equipment a/c		304053.24
Lease receivable a/c dr	304053.24
To  equipment a/c		281530.78
To gain on sale of equipment		22522.46
Lease receivable a/c Dr	281530.78
To equipment a/c		281530.78
Lease receivable a/c Dr	304053.24
To sales revenue a/c		304053.24
Cost of goods sold a/c	281530.78
To inventory a/c		281530.78
17. Lease expense a/c Dr	85000
To current lease payable a/c		85000
Lease payable a/c dr	67475.74
Interest expense a/c	17524.26
To current lease payable a/c		85000
Amortization a/c Dr	67475.74
To leased asset		67475.74
Lease payable a/c dr	67475.74
Interest expense a/c dr	17524.26
To cash a/c		85000
Amortization a/c Dr	76013.31
To leased asset		76013.31