Question

Eye Deal Optometry leased vision-testing equipment from Insight Machines on January 1, 2018. Insight Machines manufactured the equipment at a cost of $360,000 and lists a cash selling price of $492,102. Appropriate adjusting entries are made quarterly. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Related Information:
Lease term	5 years (20 quarterly periods)
Quarterly lease payments	$27,000 at Jan. 1, 2018, and at Mar. 31, June 30, Sept. 30, and Dec. 31 thereafter.
Economic life of asset	5 years
Interest rate charged by the lessor	4%

Required:
1. Prepare appropriate entries for Eye Deal to record the arrangement at its beginning, January 1, 2018, and on March 31, 2018.

a. Record the beginning of the lease for Eye Deal. (Jan 1)

b. Record the quarterly rental paid by Eye Deal. (Jan 1)

c. Record the quarterly rental and interest paid by Eye Deal. (March 31)

d. Record the Amortization of Right-of-use equipment for Eye Deal. (March 31)

2. Prepare appropriate entries for Insight Machines to record the arrangement at its beginning, January 1, 2018, and on March 31, 2018.
a. Record the beginning of the lease for Insight Machines. (Jan 1)

b. Record the lease revenue received by Insight Machines. (Jan 1)

c. Record the lease revenue and interest received by Insight Machines. (March 31)

Answer 1

Journal Entry in the books of Eye Deal
Date	Account & Explanation	Debit	Credit		Lease Amortization Schedule
01/01/2018	Right of Use-Vision Testing Equipment	$492,102.00			Date	Lease Rent Received /Payment	Interest Income/Expense@4%	Reduction of Lease Liability Receivable	Lease Liability Receivable
	Lease Liability		$492,102.00		01/01/2018				$492,102
	Being Lease asset Recorded				01/01/2018	$27,000.0		$27,000.0	$465,102.0
					01/04/2018	$27,000.0	$4,651.02	$22,349.0	$442,753.0
	Lease Liability	$27,000.00			01/07/2018	$27,000.0	$4,427.53	$22,572.5	$420,180.6
	Cash		$27,000.00		01/10/2018	$27,000.0	$4,201.81	$22,798.2	$397,382.4
	Being Lease rent paid recorded				31/12/2018		$3,973.82		$397,382.4
					01/01/2019	$17,000.0	$7,947.65	$9,052.4	$388,330.0
31/03/2018	Lease Liability	$22,349.00
	Interest Expense	$4,651.02
	Cash		$27,000.00
	Being Lease rent paid recorded
31/03/2018	Depreciation on Right of Use - Vision Testing Equipment	$24,605.10
	Accumulated Deprecition		$24,605.10
	Being Amortisation of Leased Asset( $492102/5/4)
Journal Entry in the books of Insight Machine
Date	Account & Explanation	Debit	Credit
01/01/2018	Lease Receivable	$492,102.00
	Cost of Goods Sold	$360,000.00
	Sales		$492,102.00
	Inventory		$360,000.00
	To Record Sale and Lease Receivable
31/03/2018	Cash	$27,000.00
	Interest Income		$4,651.02
	Lease Receivable		$22,349.00
	Being Lease rent Received recorded