Question

On January 1, 2021, The Danny Ainge Co. leased printing equipment from Laker LeaseCorp.

• Lease term = 3 years
• Useful life = 4 years
• Semiannual lease payments of $164,000 at the beginning of each period
• Interest rate = 14%
• Unguaranteed residual value = $50,000
• Maintenance Fees = $4,000/twice each year (included in the payments)
• Lessor’s initial indirect costs = $5,000
• Cost to produce the printing machine = $550,000
• After the fact, you determine that your actual Residual Value is $20,000

Required (Please put Dr in front of your debits and Cr in front of your credits, else it is hard to see what is a debit or credit in the d2L output):

1. Prepare Journal Entries for Danny Ainge Co. and Laker LeaseCorp on December 31, 2021

Answer 1

	Lease term	3 years
	useful Life	4 years
	Semi annual lease payment at the beginning of the period	164000
	so for a year paymeny would be	328000
	Cost of machine	550000
	Residual value	20000
	Depreciation	(cost of machine - residual value) / Useful life
		132500
	Journal entries in the books of Laker Lease Corp.
Date	Particulars	Amount $	Amount $
01.01.21	Danny Ainge Co                                                        Dr	164000
	To Royalty Receivables                                 Cr		164000
	(being Royalty due)
01.01.21	Bank A/c                                                               Dr	164000
	To Danny Ainge Co                                      Cr		164000
	( being Royalty Received)
01.07.21	Danny Ainge Co                                                        Dr	164000
	To Royalty Receivables                                 Cr		164000
	(being Royalty due)
01.07.21	Bank A/c                                                               Dr	164000
	To Danny Ainge Co                                      Cr		164000
	( being Royalty Received)
31.12.21	Royalty Receivables A/c                               Dr	328000
	To Profir & Loss A/c                           Cr		328000
	( being royalty received transferred to Profit and loss account)
	Journal entries in the books of Danny Ainge Co
Date	Particulars	Amount $	Amount $
01.01.21	Royalty A/c                                                        Dr	164000
	To Laker Lease Corp                                Cr		164000
	( being royalty due)
01.01.21	Laker Lease Corp                                         Dr	164000
	To Cash		164000
	( being cash paid to owner)
01.07.21	Royalty A/c                                                        Dr	164000
	To Laker Lease Corp                                Cr		164000
	( being royalty due)
01.07.21	Laker Lease Corp                                         Dr	164000
	To Cash                                                     Cr		164000
	( being cash paid to owner)
31.12.21	Profit and Loss A/c                                   Dr	328000
	To Royalty                                              Cr		328000
	( being royalty transferred to P&L A/c)
31.12.21	Depreciation A/c                                            Dr	132500
	To Equipment A/c		132500
	( being Depreciation charged)