Question

On January 1, 2021, Maywood Hydraulics leased drilling equipment from Aqua Leasing for a four-year period ending December 31, 2024, at which time possession of the leased asset will revert back to Aqua. The equipment cost Aqua $412,184 and has an expected economic life of five years. Aqua expects the residual value at December 31, 2024, to be $50,000. Negotiations led to Maywood guaranteeing a $70,000 residual value. Equal payments under the lease are $100,000 and are due on December 31 of each year with the first payment being made on December 31, 2021. Maywood is aware that Aqua used a 5% interest rate when calculating lease payments. (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: 1. & 2. Prepare the appropriate entries for Maywood on January 1, 2021 and December 31, 2021, related to the lease. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answers to the nearest whole dollar.)

Answer 1

В A Particulars 2 Present value of periodic lease payments (100000*3.54595) D E F G H Amount ($) 354595 (present value of an ordinary annuity of $1: n=4, i=5% 3 Plus: present value of an estimated cash payment under a resid 4. Present value of expected lease payments 5 16454 (present value of $1: n=4, i=5% 371049

9 Debit ($) Credit ($) 371049 371049 7 1) 8 Date Particulars 1 -Jan-21 Reight-of-use asset 10 Lease payable 11 (To record the lease) 12 13 2) 14 Date Particulars 15 31-Dec-21 Amortization expense (371049/4years) Right-of-use asset 17 |(To record the related to the lease) Debit ($) Credit ($) 92762 92762 16 18 Credit ($) 19 3) 20 Date Particulars 21 31-Dec-21 Interest expense (5%*371,049) 22 Lease payable (difference: from schedule) Cash (annual payment) (To record the annual payment of lease) Debit ($) 18552 81448 23 100000 24