Question

Eastern Edison Company leased equipment from Low-Tech Leasing on January 1, 2018. Low-Tech recently purchased the equipment at a cost of $313,821. Other information: Lease term 4 years Annual payments $90,000 on January 1 each year Life of asset 4 years Fair value of asset $313,821 Implicit interest rate 10% Incremental rate 10% There is no expected residual value. Required: Prepare appropriate journal entries for Low-Tech Leasing for 2018. Assume a December 31 year-end. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to the nearest whole dollar amounts.)

Answer 1

Date	Accounts Titles and Explanation	Debit	Credit
Jan, 1	Lease Asset	$       313,821
	Lease Payable		$       313,821
	(To record inception of lease)
	Lease Payable	$         90,000
	Cash		$         90,000
	(To record lease amount paid)
Dec, 31	Interest Expense (313821-90000)*10%	$         22,382
	Interest Payable		$         22,382
	(To record lease interest accrued)
	Depreciation Expense (313821/4)	$         78,455
	Accumulated Depreciation		$         78,455
	(To record depreciation on lease asset)