8 On January 1, 2018, Nguyen Electronics leased equipment from Nevels Leasing fo

Question

8 On January 1, 2018, Nguyen Electronics leased equipment from Nevels Leasing for a four-year period ending December 31, 2018, at which time possession of the leased asset will revert back to Nevels. The equipment cost Nevels $834,368 and has an expected economic life of five years. Nevels expects the residual value at December 31, 2018, will be $110,000. Negotiations led to the lessee guaranteeing a $160,000 residual value Equal payments under the lease are $210,000 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 7% interest rate when calculating lease payments Ey of St P 0 ·PA of $1 PVA of FVAD of $1 and PVAD of $) (Use appropriate factorfs) 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. Complete this question by entering your answers in the tabs below. Prepare the appropriate entries for both Nguyen and Nevels on January 1, 2018, to record the lease. (If no entry is required for a transaction/ select "No journal entry required" in the first account field.) Journal entry worksheet Record the beginning of the lease for Nguyen.

Explanation / Answer

Answer: Requirement 1 (In the books of lessee)-Nguyen Electronics Date Journal entries Debit Credit 1-Jan Lease equipment $                          833,378 Lease payable $                                  833,378 (To record Lease of equipment) (In the books of lessor)-Nevels Date Journal entries Debit Credit 1-Jan Lease receivable $                          833,378 Inventory-Equipment $                                  833,378 (To record Lease of equipment) Requirement 2 (In the books of lessee)-Nguyen Electronics 31-Dec Interest expense $                            58,336 ($833,378*7%) Lease payable $                          151,664 ($210,000-58,336) Cash $                                  210,000 (To record payament of installment) 31-Dec Depreciation Expense $                          208,344 Accumulated Depreciation $                                  208,344 ($833,378/ 4 years) (To record depreciation expense ) (In the books of lessor)-Nevels 31-Dec Cash $                    210,000.00 Lease receivable $                                  151,664 ($210,000-58,336) Interest revenue $                                    58,336 ($833,378*7%) (To record payament of installment) Work Note: Annual lease payment $                    210,000.00 PV annuity@ 6% for 4 years                                   3.387 Present Value of lease payment $                          711,314 Add: Present value of gauranty residual value $                          122,063 ($160,000*0.7629) Present Value of lease equipment $                          833,378

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