Question

Sweet Corporation enters into a 5-year lease of e m ent on December 31, 2019, which requires a payments of $39,200 each, beginning December 31, 2019. In addition, Sweet guarantees the lessora residual value of $21,100 at the end of the lease. However, Sweet believes it is probable that the expected residuale at the end of the lease term will be $10.550 The equipment has a useful life of 5 years Prepare Sweets ember 31, 2012. journal entre asuming the impetrate of the leases and this is known to Sweet. (Credit account ortomoly Indented when amount is entered. Do not indemana Porcellation purposes, use 5 decimal places as displayed in the factor table provided and round find answers to decimal process 5.275) Click here to view the tables Debit Credit Date Account Titles and Explanation December 31, 2019 Leased i n (To record the lease abit) December 31, 2019 Lease (To record lease payment)

Answer 1

Decmber 31,2019	Leased Equipment	$ 1,73,053
	Lease Liability		$ 1,73,053
	(To record the lease liability)
Decmber 31,2019	Lease Liability	$     39,200
	Cash		$     39,200
	(To record lease payment)

When expected residual value less than the guaranteed residual value, the difference between the guaranteed residual value and expected residual value should be considered for calculation of lease liability.

Guranteed residual value by lessee	$        21,100
Expected residual value	$        10,550
Difference	$        10,550

Calculation of Present value of Minimum lease payments/Lease liability
Period	Particulars	Payments	PV factor	PV of Minmum lease payments
Decmber 31,2019	Lease installment	$     39,200	1	$                39,200
Decmber 31,2020	Lease installment	$     39,200	0.91743	$                35,963
Decmber 31,2021	Lease installment	$     39,200	0.84168	$                32,994
Decmber 31,2022	Lease installment	$     39,200	0.77218	$                30,269
Decmber 31,2023	Lease installment	$     39,200	0.70842	$                27,770
Decmber 31,2024	Residual value difference	$     10,550	0.64993	$                  6,857
	Total			$            1,73,053