Question

Eye Deal Optometry leased vision-testing equipment from Insight Machines on January 1, 2021. Insight Machines manufactured the equipment at a cost of $230,000 and lists a cash selling price of $264,336. 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) $17,250 at Jan. 1, 2021, and at Mar. 31, June 30, Sept. 30, and Dec. 31 thereafter 5 years 12% 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

Answer
Journal entry
Required 1 :-
Date	Account Titles and Explanations	Debit	Credit
01-01-2021	Right of use Assets	$ 2,64,336.00
	To, Lease Payable		$    2,64,336.00
	( To record the lease payable)
01-01-2021	Lease Payable	$     17,250.00
	To, Cash		$       17,250.00
	( To record the lease payment)
31-03-2021	Lease Payable	$       9,837.42
	Interest Expense [($234,336 - $17,250)× 12% × 3/12 months]	$       7,412.58
	To Cash		$       17,250.00
31-03-2021	Amortization Expenses ($264,336 /20 quarter )	$     13,216.80
	To Right of use Assets		$       13,216.80
	( To record amortization expenses)
Required 2 :-
Date	Account Titles and Explanations	Debit	Credit
01-01-2021	Lease Receivables	$ 2,64,336.00
	Cost of good sold	$ 2,30,000.00
	To Equipment		$    2,30,000.00
	To Sales Revenue		$    2,64,336.00
	(To record sales)
01-01-2021	Cash	$     17,250.00
	To Lease Receivables		$       17,250.00
	(To record lease receipt)
31-03-2021	Cash	$     17,250.00
	To Lease Receivables		$         9,837.42
	To Interest Revenue		$         7,412.58
	(To record interest and lease receivable)