Question

Eastern Edison Company leased equipment from Low-Tech Leasing on January 1, 2018. Low-Tech recently purchased the equipment at a cost of $327,720.

Other information:
Lease term	5 years
Annual payments	$76,000 on January 1 each year
Life of asset	5 years
Fair value of asset	$327,720
Implicit interest rate	8%
Incremental rate	8%

There is no expected residual value.

Required:
Prepare appropriate journal entries for Low-Tech Leasing for 2018. Assume a December 31 year-end. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to the nearest whole dollar amounts.)

No	Date	General Journal	Debit	Credit
1	January 01, 2018	Lease payable
		Equipment

Answer 1

Solution:

Journal Entries - Low - Tech Leasing
Date	Particulars	Debit	Credit
1-Jan-18	Lease receivables Dr	$327,720.00
	To Equipment		$327,720.00
	(Being equipment given on lease)
1-Jan-18	Cash Dr	$76,000.00
	To Lease receivables		$76,000.00
	(To record receipt of lease payment)
31-Dec-18	Interest receivables Dr	$20,138.00
	To Interest revenue [($327,720 - $76,000)*8%]		$20,138.00
	(To record interest revenue)