Question

On January 1, 2018, Nguyen Electronics leased equipment from Nevels Leasing for a four-year period ending December 31, 2021, at which time possession of the leased asset will revert back to Nevels. The equipment cost Nevels $829,368 and has an expected economic life of five years. Nevels expects the residual value at December 31, 2021, will be $105,000. Negotiations led to the lessee guaranteeing a $150,000 residual value. Equal payments under the lease are $205,000 and are due on December 31 of each year with the first payment being made on December 31, 2018. Nguyen is aware that Nevels used a 7% interest rate when calculating lease payments. (EV of $1. PV of $1. EVA of 51. PVA of $1. EVAD of 51 and PVAD of S1) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare the appropriate entries for both Nguyen and Nevels on January 1, 2018, to record the lease. 2. Prepare all appropriate entries for both Nguyen and Nevels on December 31, 2018, related to the lease. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare the appropriate entries for both Nguyen and Nevels on January 1, 2018, to record the lease. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet < 1 2 Record the beginning of the lease for

Answer 1

Journal Entries (Amount in $) in books of Nguyen & Nevels)
Date	Account Titles and Explanation	Debit $	Credit$
Jan.1, 2018	Right of use Asset	808,812
	Lease Payable		808,812
	( record the lease payable in the books of Nguyen)
Jan.1, 2018	Lease Receivable	808,812
	Leased Asset		808,812
	( record the lease receivable in the books of Nevels)
Journal Entries (Amount in $) in books of Nguyen & Nevels)
Date	Account Titles and Explanation	Debit $	Credit $
Dec.31, 2018	Lease Payable (bf)	148,383
	Interest Expense (808812*7%)	56,617
	Cash		205,000
	( record the lease payment in the books of Nguyen)
Dec.31, 2018	Amortization Expense (808812/4 yrs)	202,203
	Right of use Asset		202,203
	( record the amortization expenses in the books of Nguyen)
Dec.31, 2018	Cash	205,000
	Interest Income (808812*7%)		56,617
	Lease Receivable		148,383
	( record the lease receivable in the books of Nevels)
	Computation of Fair Value of Lease
	Annual Payments*PVAF(7%, 4 yrs) (205000*3.38721)	$694,378
	Guaranted Residual Value*PVF(7%,4 yrs) (150000*0.762895)	$114,434
	Total Fair Value of Lease	$808,812