Question

On January 1, 2018, Allied Industries leased a high-performance conveyer to Karrier Company for a four-year period ending December 31, 2021, at which time possession of the leased asset will revert back to Allied. The equipment cost Allied $956,000 and has an expected useful life of five years. Allied expects the residual value at December 31, 2021, will be $300,000. Negotiations led to the lessee guarantee ing a $340,000 residual value. (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.) Equal payments under the finance/sales-type lease are $200,000 and are due on December 31 of each year with the first payment being made on December 31, 2018. Karrier is aware that Allied used a 5% interest rate when calculating lease payments. Required: 1. Prepare the appropriate entries for both Karrier and Allied on January 1, 2018, to record the lease. 2. Prepare all appropriate entries for both Karrier and Allied on December 31, 2018, related to the lease. Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare the appropriate entries for both Karrier and Allied on January 1, 2018, to record the lease. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to nearest whole dollar. Round your answers to nearest whole dollar.) No Date General Journal Debit Credit January 01, 2018 Right-of-use asset 742,098 1 742,098 Lease payable 988,909 2 January 01, 2018 Lease receivable 200,000 Cost of goods sold Equipment 956,000 200,000 x Sales revenue Required 1 Required 2

Answer 1

Prepare the journal entries on Jan1, 2018 as follows: Credit Date Accounts name and explanation Jan. 1, 2018 Right to use asset Lease payable Debit $742.098 $742,098 $988,909 $956,000 Jan. 1, 2018 Lease receivable Cost of goods sold Equipment Sales revenue $956,000 $988,909 Prepare the journal entries on Dec 31, 2018 as follows: Credit Date Accounts name and explanation Dec. 31, 2018 Interest expense Lease payable Cash Debit $37,105 $162,895 $200,000 $185,525 Dec. 31, 2018 Amortization expense Right to use asset $185,525 $200,000 Dec. 31, 2018 Cash Lease receivable (200000 - 49445) Interest revenue (988909 5% $150,555 $49,445