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Exercise 21-4 Your answer is partially correct. Try again. Vaughn Leasing Company signs a lease agreement on January 1, 2017,(a) Prepare the journal entries on the books of Vaughn Leasing to reflect the payments received under the lease and to recogn

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Answer #1

Answer -

Step - (1) - Calculation of Annual Lease Payments -

Particulars Explanation
I. Fair value of leased asset Given in question $175000
II. Present Value of salvage value of leased asset

Salvage value * PVIF of $1 (i%, n)

= $14900 * $1(8%,2 years)

= $14900 * 0.85734

= $12774

$12774
III. Present Value of annual lease payments I - II $162226
IV. Lease term Given in question 2 years
Annual Lease Payments III / IV $81113

.

Step - (2) -

Journal of Vaughn Leasing Company

Date Account Titles and Explanation Debit ($) Credit ($)
1/1/17

Lease Receivable

Equipment

175000

-

-

175000

12/31/17

Cash

Executory Costs Payable [given in question]

Interest Revenue [$175000 * 8%]

Lease Receivables [$81113 - $14000]

85813

-

-

-

-

4700

14000

67113

12/31/18

Cash

Executory Costs Payable [given in question]

Interest Revenue [($175000 - $67113) * 8%]

Lease Receivables [$81113 - $8631]

85813

-

-

-

-

4700

8631

72482

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