Question

Eye Deal Optometry leased vision-testing equipment from Insight Machines on January 1, 2021. Insight Machines manufactured the equipment at a cost of $360,000 and lists a cash selling price of $492,102. 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) $27,000 at Jan. 1, 2021, and at Mar. 31, June 30, Sept. 30, and Dec. 31 thereafter 5 years 4% 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

Required 1 :
No	Date	General Journal	Debit	Credit
1)	January , 01,2021	Right -of -use asset (Note 1 )	$ 492,102
		Lease Payable		$ 492,102
		(To record thebeginning of the lease for Eye Deal )
2)	January , 01,2021	Lease Payable	$ 27,000
		Cash		$ 27,000
		(To record the Quarterly rental paid by Eye Deal )
3)	March 31,2021	Interest Expense {(492,102-27,000)*1% }	$ 4,651
		Lease Payable ($27,000 - $4,651 )	$ 22,349
		Cash		$ 27,000
		(To record the Quarterly rental and Interest paid by Eye Deal )
4)	March 31,2021	Amortization Expense (492,102/20 Periods }	$ 24,605
		Right -of -use asset		$ 24,605
		(To record Amortization of Right of use Equipment for Eye Deal }

Note 1 :

Present Value of Annuity of $1 , n=20 , i= 1 % is 18.22601

$27,000 *18.22601 = $ 492,102

Required 2 :
No	Date	General Journal	Debit	Credit
1)	January , 01,2021	Lease Receivable (See Note 1 Above )	$ 492,102
		Cost of goods sold	$ 360,000
		Sales revenue		$ 492,102
		Equipment		$ 360,000
		(to record the beginning of the lease for insight Machine )
2)	January , 01,2021	Cash	$27,000
		Lease Receivable		$27,000
		(To record the lease revenue received by Insight Machine )
3)	March 31,2021	Cash	$ 27,000
		Lease Receivable (27,000 -4,651 )		$ 22,349
		Interest Revenue {(492,102-27,000)*1%}		$ 4,651
		(To record the lease revenue and Interest received by Insight Machine )

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