Question

Suppose that on that same date (January 1, 2020) Demon Deacon Co. enters into another lease contract. The lease arrangement is for 8 years, has a bargain purchase option for $15,000, but no residual value guarantee. The expected useful life of the asset is 10 years. The initial value of the capital lease asset (and liability) is $615,000. Lease payments are end-of-year payments of $93,583. Record the journal entries for this lease arrangement that would be made on December 31, 2020, given the information.

Answer 1

The following lease arrangement entries would be made in books of lessee:

Journal Entries as on 31st Dec,2020
Date	Particulars	Debit	Credit
Dec,31	Interest Expense A/c(615000*8%*1 yr)	49,200.00
	To Lease Liablity A/c		49,200.00
	(being Interest is charged on lease liability)
Dec,31	Lease Liablity A/c	93,583.00
	To Bank/Cash		93,583.00
	(Being lease liablity paid)
Dec,31	Dep A/c	76,875.00
	To Lease Asset		76,875.00
	(Dep on (615000) for 8 years on SLM basis
	Working Interest Rate
	By Trial & Error Method, Interest rate will be 5%, at this rate Fair Value of assets from future cash outflow of Rs 93583 for 8 years and Purchase option at Rs 15000 in 8th Year will be Rs 615000.

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