Question

Eastern Edison Company leased equipment from Hi-Tech Leasing on January 1, 2018. Other information: Lease term 4 years Annual payments $89,000 on January 1 each year Life of asset 4 years Implicit interest rate 8% PV, annuity due, 4 periods, 8% 3.5771 PV, ordinary annuity, 4 periods, 8% 3.3121 Hi-Tech's cost of the equipment $318,362 There is no expected residual value. Required: Prepare appropriate journal entries for Hi-Tech Leasing for 2018 and 2019. 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

Lease amortization table - lessor
Period	Beginning balance of lease receivable	Lease receipt	Interest revenue (Beginning balance of lease receivable* 8%)	Reduction in lease receivable (Lease receipt - Interest revenue)	Ending balance of lease receivable (Beginning balance of lease receivable - Reduction in lease receivable)
Year 0	318,362	89,000	-	89,000	229,362
Year 1	229,362	89,000	18,349	70,651	158,711
Year 2	158,711	89,000	12,697	76,303	82,408
Year 3	82,408	89,000	6,593	82,407	0

Journal entries
Transaction	General Journal	Debit	Credit
Jan 1, 2018	Lease receivable (89000*4)	356,000
	Equipment inventory		318,362
	Unearned interest revenue (356000-318362)		37,638
	(To record Lease agreement.)
Jan 1, 2018	Cash	89,000
	Lease receivable		89,000
	(To record lease received.)
Dec 31, 2018	Unearned interest revenue	18,349
	Interest revenue		18,349
	(To record interest revenue for the year.)
Jan 1, 2019	Cash	89,000
	Lease receivable		89,000
	(To record lease received.)
Dec 31, 2019	Unearned interest revenue	12,697
	Interest revenue		12,697
	(To record interest revenue for the year.)