Question

Commencement date May 1, 2020

Annual lease payment due at the beginning of each year, beginning with May 1, 2020 $17,225.30

Bargain purchase option price at end of lease term $4,000

Lease term 5 years

Economic life of leased equipment 10 years

Lessor’s cost $55,000

Fair value of asset at May 1, 2020 $77,000

Lessor’s implicit rate 8 % ; Lessee’s incremental borrowing rate 8 % ;The collectibility of the lease payments by Metlock is probable.

Prepare the journal entries to reflect the signing of the lease agreement and to record the receipts and income related to this lease for the years 2020 and 2021. The lessor's accounting period ends on December 31. Reversing entries are not used by Metlock. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 5,275.15. Record journal entries in the order presented in the problem.) Credit Date 5/1/ 20 Account Titles and Explanation L ease Receivable Debit 77000 Cost of Goods Sold 55000 Sales Revenue Inventory (To record the lease) 5/1/20 Cash 17225.30 17225.30 Lease Receivable (To record lease payment) Interest Expense 12/31/20 Interest Payable 5/1/21 Lease Expense Lease Liability 12/31/21 Amortization Expense Right-of-Use Asset

Answer 1

thower Lense Agreement - Lease Agreement is agreement to use the asset by the other party in consideration of the installment the party who give payment for right of use is the lesee and party who gives quitt for right of use is lessor. Lesse also gives interest in the installment paymeat_ e of legre Payment 19225.90 (10g) + ) 179**ciepst: +1 +14000 x 1 Date : (17225.90 X 4.3)2)) + (4000 x 0.6305) : 74278 + 2723 77000 Journal Entries in the books of metlock Inc. - Partiylgo5 loebit & Credit2- - 1/5/20 / Legge Receivable Alc Lol 77000 Cost of Goods sold Al 5500 - To Sales. Revegye Alc 77000 - To Inventory Alc (Being to record the lease) 55000 17225-30 17225, 30 1/5/20 | Cash Ale - To Legse Receivable Nc eing to record first lease payment neujved) _ /1/20 Interest Receivable. Als | (77000 - 17225.30) x 8%*%2]n Io Interest Revegye Alc fering to record in lowest receivable for 8 months) 387.98 3187.38

17225.30 112 443.32 3187.93 1593.99 1/5/2) | Cash Ak To lewe Receivable (17225.30 – 3187,98 - 1593.99) To Interest Receivable To Iglesest. Revenue [( 77000 - 17225.30) 8%x%2] (Being to record second leque payment) -31/1321/ Intevecz Receivable Alf ((77000 - 17225.30 -12443.32) X 8% *830123 12524.34 To Interest Revenue Ale (Being to record interest receivable for 8 months of second year) 12524.34 172162.921172162.92