Question

On January 1, 2021, Allied Industries leased a high-performance conveyer to Karrier Company for a four-year period ending December 31, 2024, at which time possession of the leased asset will revert back to Allied. The equipment cost Allied $956,000 and has an expected useful life of five years. Allied expects the residual value at December 31, 2024, will be $300,000. Negotiations led to the lessee guaranteeing a $340,000 residual value. (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.) Equal payments under the finance/sales-type lease are $200,000 and are due on December 31 of each year with the first payment being made on December 31, 2021. Karrier is aware that Allied used a 5% interest rate when calculating lease payments. Required: 1. Prepare the appropriate entries for both Karrier and Allied on January 1, 2021, to record the lease. 2. Prepare all appropriate entries for both Karrier and Allied on December 31, 2021 related to the lease. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare all appropriate entries for both Karrier and Allied on 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 answers to nearest whole dollar)

Answer 1

Prepare the appropriate entries for both Karrier and Allied on January 1, 2021, to record the lease. Annual Lease Payments 200000 P.V n =4,1 =5 3.54595 Present Value of Annual Lease Payment 709190 Add Present Value of residual value (340000*.82270) 279718 Present Value of Lease Payable 988908 Annual Lease Payments P.V n = 4,1=5 Present Value of Annual Lease Payment Add Present Value of excess residual value (40000*.82270) Present Value of Lease Payable 200000 3.54595 709190 32908 742098 Debit Credit Date General Journal 2018 1-Jan Right-of use Asset Lease Payable (To record inception of lease) 742,098 742,098 988908 676282 Lease Receivable Cost of Goods Sold (190000-4868) Sales Revenue Equipment 709190 956000

Or this entry can also be passed like this 988908 988908 36 Lease Receivable Equipment 38 39 'ayment Dat Lease Payments (A) 40 41 12/31/2021 42 12/31/2022 Effective Interest @ 5% (B) Decrease in Balance (A-B) Lease Balance 200000 200000 37105 28960 162895 171040 742098 579203 408163 43 45 2. Prepare all appropriate entries for both Karrier and Allied on December 31, 2021, related to the lease. 46 Debit Credit Date General Journal 2021 31-Dec Lease Payable Interest expense Cash 162895 37105 200000 185525 31-Dec Amortization expense (780049/4) Right of Use Asset 185525 200000 31-Dec Cash Interest Revenue Lease Receivable 37105 162895