Question

Indigo Corporation enters into a 7-year lease of equipment on December 31, 2016, which requires 7 annual payments of $37,500 each, beginning December 31, 2016. In addition, Indigo guarantees the lessor a residual value of $18,700 at the end of the lease. However, Indigo believes it is probable that the expected residual value at the end of the lease term will be $8,700. The equipment has a useful life of 7 years. Prepare Indigos' December 31, 2016, journal entries assuming the implicit rate of the lease is 9% and this is known to Indigo.

Date	Account Titles and Explanation	Debit	Credit
December 31, 2016
	(To record the lease liability)
December 31, 2016
	(To record lease payment)

Answer 1

Answer
Date	Accounts title	Dr	Cr
31-Dec-16	Right to use assets or Lease Equipment	$           1,98,965
	To Leased Liability		$     1,98,965
	(To record the lease liability)
31-Dec-16	Leased Liability	$              37,500
	To cash		$        37,500
	(To record lease payment)
Working note
Preasent value of minimum lease payment		37500*5.03295	$     1,88,736
Preasent value of Guranteed residual value		18700*.547034	$        10,230
			$     1,98,965