Question

Eye Deal Optometry leased vision-testing equipment from Insight Machines on January 1, 2021. Insight Machines manufactured the equipment at a cost of $310,000 and lists a cash selling price of $387,774. Appropriate adjusting entries are made quarterly. (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.) Related Information: Lease term Quarterly lease payments Economic life of asset Interest rate charged by the lessor 5 years (20 quarterly periods) $23, 250 at Jan. 1, 2021, and at Mar. 31, June 30, Sept. 30, and Dec. 31 thereafter 5 years 84 Required: 1. Prepare appropriate entries for Eye Deal to record the arrangement at its beginning, January 1, 2021, and on March 31, 2021. 2. Prepare appropriate entries for Insight Machines to record the arrangement at its beginning, January 1, 2021, and on March 31, 2021.

Answer 1

Requirement 1 Requirement 2 No Credit' No Credit' Date 1 Jan 1 2021 General Journal Right-of-Use Asset Lease Payable Debit' $ 387,774.00 Date 1 Jan 1 2021 General Journal Lease Receivable Cost of goods sold Sales revenue Equipment Debit' $387,774.00 $ 310,000.00 $ 387,774.00 $ $ 387,774 310,000 (To Record Lease Payable) 2 Jan 1 2021 $ 23,250.00 Lease Payable Cash (To Record Sale) $ 23,250.00 2 Jan 1 2021 $ 23,250.00 Cash Lease Receivable (To Record lease payment) $ 23,250 (To Record lease receipt) 3 Mar 31 2021 Lease Payable Interest Expense Cash $ $ 15,960 7,290 $ 23,250.00 $ 23,250.00 3 Mar 31 2021 Cash Interest Revenue Lease Receivable (To Record lease payment and Interest) $ $ 7,290 15,960 $ 19,389 (To Record Interest and lease Receivable) 4 Mar 31 2021 Amortization expense Right-of-Use Asset $ 19,389 (To Record amortization expense)

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