Question

Eastern Edison Company leased equipment from Low-Tech Leasing on January 1, 2018. Low-Tech recently purchased the equipment at a cost of $222,664.

Other information:
Lease term	3 years
Annual payments	$80,000 on January 1 each year
Life of asset	3 years
Fair value of asset	$222,664
Implicit interest rate	8%
Incremental rate	8%

There is no expected residual value.

Required:
Prepare appropriate journal entries for Low-Tech Leasing for 2018. Assume a December 31 year-end. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to the nearest whole dollar amounts.)

Record the entry at the inception of the lease

Record the entry for annual payment receipt

Record the entry for interest revenue

Answer 1

	8.00%
Year	Cash Flow	PV factor	Present Values
0	80,000	1.000	80,000
1	80,000	0.926	74,076
2	80,000	0.857	68,588
	Total of Present Values		222,664
Books of Low-Tech
1-Jan-18	Lease receivable Dr	222,664
	To Cost of sale		222,664
	(Being Asset sold on lease)
1-Jan-18	Bank      Dr	80,000
	To Lease receivable		80,000
	(Being First Installment received)
31-Dec-18	Lease receivable Dr	11,413
	To Interest receivable		11,413
	(Being first-year interest accrued)
	(222664-80000)*8%