Eye Deal Optometry leased vision-testing equipment from Insight Machines on Janu

Question

Eye Deal Optometry leased vision-testing equipment from Insight Machines on January 1, 2018. Insight Machines manufactured the equipment at a cost of $290,000 and lists a cash selling price of $333,293. Appropriate adjusting entries are made quarterly. (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 appropriate entries for Eye Deal to record the arrangement at its beginning, January 1, 2018, and on March 31, 2018.
2. Prepare appropriate entries for Insight Machines to record the arrangement at its beginning, January 1, 2018, and on March 31, 2018.

Related Information: Lease term 5 years (20 quarterly periods) Quarterly lease payments $21,750 at Jan. 1, 2018, and at Mar. 31, June 30, Sept. 30, and Dec. 31 thereafter. Economic life of asset 5 years Interest rate charged by the lessor 12%

Explanation / Answer

1 Eye Deal : Jan-1-18 Right of use asset 333293      Lease payabe 333293 Jan-1-18 Lease payabe 21750      Cash 21750 Mar-31-18 Interest expense 9346 =(333293-21750)*3% Lease payabe 12404      Cash 21750 Mar-31-18 Amortization expense 16665 =333293/20      Right of use asset 16665 2 Insight Machines: Jan-1-18 Lease receivable 333293 Cost of goods sold 290000        Sales revenue 333293        Equipment 290000 Jan-1-18 Cash 21750     Lease receivable 21750 Mar-31-18 Cash 21750     Interest revenue 9346 =(333293-21750)*3%     Lease receivable 12404

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