Question

Newton Labs leased chronometers from Brookline Instruments on January 1, 2021. Brookline Instruments manufactured the chronometers at a cost of $160,000. The chronometers have a fair value of $168,591. 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.) Related Information: Lease term Quarterly lease payments Economic life of asset Estimated residual value of chronometers at end of lease term Interest rate charged by the lessor 5 years (20 quarterly periods) $ 11,638 at Jan. 1, 2021, and at Mar. 31, June 30, Sept. 30, and Dec. 31 thereafter. 6 years $8,983 16% Required: 1. Prepare appropriate entries for Newton Labs to record the arrangement at its commencement, January 1, 2021, and on March 31, 2021 2. Prepare appropriate entries for Brookline Instruments to record the arrangement at its commencement, January 1, 2021, and on March 31, 2021.

Answer 1

1 Present value of Quarterly layment in quarterly Palyments XP v Factor = $11,638 x 14.1340 = $ 164491.49 - $164492 (Rounded off) Journal Entries for Newton Labs Credit Debit $164492 $164492 $ 11,638 Date Account Titte 2/02/2021 Right to use Lease Payable (To drecord beginning of lease) 1/02/2021 hase Payable Cash. (To crecord Quarterly Payment) 31/03/2021 Interest Expense (164492X4%) Lease Payable Cash $ 11,638 $6580 $5058 $ 11,638 $8225 31/03/2021 $8225 Amortization Expense Right to use (164492/20)

2 Journal Entries in the books of Brookline Instruments Account Title Debit Credit 1/01/2021 lease Receivable $168592 cost of Goods sold 160,000 ---8983x0.4564 $155900 sales Revenue Equipment $ 164492 $ 160,000 1/01/2021 $11,638 Cash Lease Receivable $11638 31/03 (202) $11638 Cash Interest Revenue (168592 - 1,638 x 4% Lease Receinable $6278 $5360