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Company A leased equipment to Company B on January 1, 2020. The lease does not meet...

Company A leased equipment to Company B on January 1, 2020. The lease does not meet the criteria for classification as a finance lease. The lease agreement specifies 5 annual payments of $50,000 beginning January 1, 2020. The interest rate is 6%. Which of the following is true regarding the entries made on January 1, 2020?

Group of answer choices

Company A records a credit to cash for $50,000.

Company B records a debit to right-of-use asset for $50,000.

Company A records a debit to Lease Receivable for $223,255.

Company B records a credit to lease payable for $223,355.

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Answer #1

Answer:4th Option )Company B records a credit to lease payable for $223,355.

Explanation:

Option 1 is wrong as Company A is the lessor and will not credit any cash but debit it to receive the lease rental, Option 2 is wrong as right-of-use will not be debited by $50,000, Option 3 is wrong as in case of operating lease Company A will not debit any Lease Receivable.

Option 4 is correct as Company B being will credit lease payable (recognizing its liability)on inception of lease for present value of lease rentals, which is $223,355.

Year 2. 3 Amount Discounting Factor Present Value 0 50000 1.0000 50000.0000 1 50000 0.9434 47169.8113 2 50000 0.8900 44499.82

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