Question

Windsor Corporation enters into a 6-year lease of equipment on December 31, 2019, which requires 6 annual payments of $37,900 each, beginning December 31, 2019. In addition, Windsor guarantees the lessor a residual value of $18,800 at the end of the lease. However, Windsor believes it is probable that the expected residual value at the end of the lease term will be $8,800. The equipment has a useful life of 6 years. Assume that for Lost Ark Company, the lessor, collectibility of lease payments is probable and the carrying amount of the equipment is $150,000.

Prepare Lost Ark’s 2019 and 2020 journal entries, assuming the implicit rate of the lease is 10% and this is known to Windsor. (Credit account titles are automatically indented when amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places e.g. 5,275. Record journal entries in the order presented in the problem.)

Date	Account Titles and Explanation	Debit	Credit
	(To record the lease)
	(To record receipt of lease payment)

Answer 1

Please find below table useful to compute desired results: -

End results would be as follows: -