Question

On January 1, 2018, QuickStream Communications leased telephone equipment from Digium, Inc. Digium’s cash selling price for the equipment is $1,987,838. The lease agreement specifies six annual payments of $430,000 beginning December 31, 2018, and at each December 31 thereafter through 2023. The six-year lease is equal to the estimated useful life of the equipment. The contract specifies that lease payments for each year will increase by the higher of (a) the increase in the Consumer Price Index for the preceding year and (b) 2 percent. The CPI at the beginning of the lease is 100. Digium routinely leases equipment to other firms. The interest rate in these lease arrangements is 8%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
Prepare the appropriate journal entries for QuickStream to record the lease at its beginning date of January 1, 2018. (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 amount.)
  
Journal entry worksheet Record the beginning of the lease for QuickStream Communications. Note: Enter debits before credits. General Journal Debit Credit Date January 01, 2018 Record entry Clear entry View general journal

Answer 1

Date	General Journal	Debit	Credit
January 01, 2018	Right-to-use Asset	$1,989,773
	Lease Liability		$1,989,773
Working
Year	Lease Payment	PV Factor
1	$430,000	0.92593	$398,150
2	$430,000	0.85734	$368,656
3	$430,000	0.79383	$341,347
4	$430,000	0.73503	$316,063
5	$430,000	0.68508	$294,584
6	$430,000	0.63017	$270,973
			$1,989,773