Question

15. On January 2, 2020, Santos Leasing Company leases equipment to Tobias Co. with 5 equal annual payments of $160,000 each, payable beginning January 2, 2020. Tobias Co. agrees to guarantee the $150,000 residual value of the asset at the end of the lease term. The expected value of the residual value is $50,000. Tobias's incremental borrowing rate is 10%; however, it knows that Santos's implicit interest rate is 8%. What journal entry would Tobias Co. make at January 2, 2020 to record the lease? 8%, 5 periods 10%, 5 periods PV Annuity Due 4.31213 4.16986 PV Ordinary Annuity 3.99271 3.79079 PV Single Sum .68508 .62092 598,449 a. Right-of-Use Asset Lease Liability 598,449 758,449 b. Right-of-Use Asset Cash Lease Liability 160,000 598,449 689,940 c. Right-of-Use Asset Cash Lease Liability 160,000 529,940 707,342 d. Right-of-Use Asset Cash Lease Liability 160,000 547,342

Answer 1

15. Option B
Right of Use Asset	$       758,449
Cash		$       160,000
Lease Liability		$       598,449
Right of Use Asset = 160000*4.31213+100000*0.68508 =$758,449
20. Option D
Service cost	$       195,000
Interest cost	$         32,000
Expected Return on Plant Assets	$       -25,000
Pension expense	$      202,000