Eastern Edison Company leased equipment from Hi-Tech Leasing on January 1, 2018

Question

Eastern Edison Company leased equipment from Hi-Tech Leasing on January 1, 2018 Other information: Lease term Annual payments Life of asset Implicit interest rate PV, annuity due, 5 periods, 7% PV, ordinary annuity, 5 periods, 7% Hi-Tech's cost of the equipment 5 years $79,000 on January 1 each year s years 7% 4.3872 4.1002 $346,589 There is no expected residual value Required Prepare appropriate journal entries for Hi-Tech Leasing for 2018 and 2019. Assume a December 31 year-end. (If no entry is required for a trensaction/event, select "No journal entry required" in the first account field. Round your answers to the nearest whole dollar amounts.) View transaction list Journal entry worksheet 4 Record the lease. Note: Enter debits before credits Date General Journal Debit Credit

Explanation / Answer

1) Record the lease(In the Books of Hi tech Leasing)

01/01/2018

Present Value of Lease payments (It is a Finance lease because lease term is equal to life of the leased asset whih is 5 years.)

PV of lease payments= $79000*4.1002= $323915.80

Lease Receivables A/c Dr $323915.80

To Equipment $323915.80

2) 01/01/2018

Cash Receipt for the annual payment

Cash A/c Dr $79000

To Lease Receivables  $79000

3) Interest Revenue

$323915.80*7%= $22674.11

Lease receivables A/c Dr $22674.11

To Interest $22674.11

4) 2019 Cash Receipt

Cash A/c Dr $79000

To Lease Receivables  $79000

5) 2019 Interest

Lease receivables A/c Dr $ 18731.29

To Interest $18731.29

Opening Value = 323,915.80

Interest = 22,674.11

Payment = 79000

Clsoing value = 323915.80+22674.11-79000=  267,589.91*7%= $18731.29

  

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