Question

Need help on requirement 2, journal entries 2 and 3.

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 $960,000 and has an expected useful life of five years. Allied expects the residual value at December 31, 2024, will be $304,000. Negotiations led to the lessee guaranteeing a $348,000 residual value. Equal payments under the finance/sales-type lease are $204,000 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 6% 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. 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. X Answer is not complete. 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.) No General Journal Credit 1 ✓ Date December 31, 202 Lease payable Interest expense Cash Debit 159,496 44,504 204.000 2 December 31, 202 Amortization expense Right-of-use asset 3 ✓ 204,000 December 31, 202 Cash Interest revenue Lease receivable 44,504 X 159,496 X

Answer 1

Journal entries:

No	Date	General Journal	Debit	Credit
2		Amortization expenses A/c	$ 185,434
		Right-of-Use asset A/c		$ 185,434
3		Cash A/c	$ 204,000
		Interest Revenue A/c		$    58,952
		Lease receivable A/c		$ 145,048

Working:

2.

a	Periodic Lease Amount	$        204,000
b	PVIFA 6%, 4 years	3.46511
c=a*b	PV of periodic lease amount	$        706,882
d	Excess lease (348,000-304000)	$          44,000
e	PVF 6%, 4 Years	0.79209
f=d*e	PV of excess lease	$          34,852
g=c+f	PV of lease payment	$        741,734
h=g/4	Amortization expenses	$        185,434	(2)
i	Guaranteed residual value	$        348,000
j=i*e	PV of guaranteed residual value	$        275,647
k=c+j	PV of lessor payment	$        982,530
l=k*6%	Interest revenue	$          58,952	[3]
m	Cash	$        204,000	[3]
n=m-l	Lease receivable	$        145,048	[3]