Question

ASD Company leased equipment from ZXC Leasing Company on January 1, 2017. ZXC Leasing Company purchased the equipment from QWE Company at a cost of $85,000 and added the equipment to its inventory of items available for lease. Additional details of the lease are as follows.

Quarterly lease payments	$15,000
Lease term	2 years
Asset's useful life	6 years
Asset's fair value at date of inception	$113,000
Purchase option lessee is reasonably certain to exercise	No
Title transfer after lease	No
Payments due	Beginning of period
Lessor's implicit rate (known to lessee)	8%

a. Determine the amount that the lessee should debit to right-of-use asset on January 1, 2017.

b. Determine the amount that the lessee should credit to lease payable on January 1, 2017.

c. Determine the amount of interest expense the lessee should recognize on April 1, 2017.

d. Determine the amount that the lessor should credit to inventory on January 1, 2017.

e. Determine the amount that the lessor should debit to lease receivable on January 1, 2017.

f. Determine the amount that the lessor should credit to lease receivable on April 1, 2017.

Answer 1