Question

Problem 3

On December 31, 2017, JK Inc. signed a five-year lease for equipment that Manu Co. manufactured at a cost of $100,000. The equipment has a six-year useful life with no salvage value. The annual lease payments are $30,000 per year, with the first payment at inception. The lessee has an option to purchase the equipment at $15,000 at the end of the lease term, when the residual value is $20,000. JK Inc. and Manu Co. use a straight-line depreciation method. The implicit rate for this transaction is 8%.

1. Prepare the journal entries required for JK Inc., the lessee, on December 31, 2017. (5 points)

2. Prepare the journal entries required for JK Inc., the lessee, on December 31, 2018. (5 points)

and plz explain exactly with computer, plz no hand writing...

tks!

Answer 1

1)
Date	Account Titles	Debit	credit
Dec 31,2017	Right to use assets	$139,572.55
	Lease Payable		$139,572.55
Present of annual lease Payment
$30,000 x PVAD(5,8%)	$129,363.81
PV of Residual Value =$15000 x PV(5,8%)	$10,208.75
Total	$139,572.55
2)
Dec 31,2018	Interest Expenses($139,572.55 - $30,000) x 8%	$    8,765.80
	Lease payable	$  21,234.20
	Cash		$  30,000.00
	Amortization  Expenses	$23,262.09
	Right to use assets		$23,262.09