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On March 1st, 2017 Garcia Corp leases a machine for 5 years from ABC equipment. The...

On March 1st, 2017 Garcia Corp leases a machine for 5 years from ABC equipment. The terms of the lease call for Garcia to make payments of $50,000 every March 1st beginning in 2017. The estimated fair value of the machine is $215,606 and it originally cost ABC $172,500. The implicit interest rate is 8%. The equipment has an estimated useful life of 6 years and an estimated residual value of $30,0000. At the end of the 5 year lease Garcia Corp receives title to the equipment.

Make the journal entries from the inception of the lease through the 2nd lease payment for both Garcia and ABC.

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In the books of Garcia Corp. (i.e. Lessee) Debit Credit Account 01-Mar-17 Machine Date 215,606.00 $215,606.00 ABC Leased Liability (Being Machine purchased on Lease) 01-Mar-17ABC Leased Liability 50,000.00 50,000.00 Cash (Being Payment of 1st Rental 31-Dec-17 Deion S 25,778.61 Machine S 25,778.61 (Being Depreciation Recorded) 01-Mar-18 ABC Leased Liability S 36,751.52 S 13,248.48 Interest Expense Cash (Being Payment of 2nd Rental) S 50,000.00

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