Question

On January 1, 2018, Nguyen Electronics leased equipment from Nevels Leasing for a four-year period ending December 31, 2021, at which time possession of the leased asset will revert back to Nevels. The equipment cost Nevels $836,368 and has an expected economic life of five years. Nevels expects the residual value at December 31, 2021, will be $112,000. Negotiations led to the lessee guaranteeing a $164,000 residual value. Equal payments under the lease are $212,000 and are due on December 31 of each year with the first payment being made on December 31, 2018. Nguyen is aware that Nevels used a 8% interest rate when calculating lease payments. (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.) Required: 1. Prepare the appropriate entries for both Nguyen and Nevels on January 1, 2018, to record the lease. 2. Prepare all appropriate entries for both Nguyen and Nevels on December 31, 2018, related to the lease.



1,107s04/ pels TABLE 1 Future Value of $1 FV $1 (1+ir n/I 1.0 % 2.0 % 1.5% 3.0 % 2.5% 4.0 % 3.5% 4.5% 5.0% 6.0 % 5.5% 8.0 % 7
Examination 2 pv of 1.jpg 1,165 759 pixels TABLE 2 Present Value of $1 PV- n 1.0% 2.0 % 1.5% 3.0 % 2.5% 4.0 % 3.5% 45% 5.0% 7
TABLE 3 Future Value of an Ordinary Annuity of $1 1+-1 FVA 1.0 % 1.5% 2.0% 3.0 % 4.0 % 2.5% 3.5% 4.5% 5.0% 7.0 % 5.5% 6.0% 10
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TABLE 6 Present Value of an Annuity Due of $1 (1+x(1+0 PVAD- n/i 1.0 % 2.0% 5.0 % 1.5% 2.5% 3.0 % 3.5% 4.0% 7.0 % 11.0 % 4.5
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Answer #1

212,000 Lease payment= Annuity factor @8% , 4 years 3.31213 Present Value of lease payment ----- S 702,172 Discounting FactorRequired 1 Credit Date Jan. 1, 2018 Debit $ 821,974 Account Titles and Explanation Right of use Asset Lease Payable (To recor

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