Question

Eye Deal Optometry leased vision testing equipment from Insight Machines on January 1, 2018. Insight Machines manufactured the equipment at a cost of $300,000 and lists a cash selling price of $344,786. Appropriate adjusting entries are made quarterly. (EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1] (Use appropriate factor(s) from the tables provided.) Related Information Lease tere Quarterly lease payments Economic life of asset Interest rate charged by the lesson 5 years (20 quarterly periods) $22,500 at Jan 1, 2018, and at Mar. 31, June 30, Sept. 30, and Dec. 31 thereafter. 5 years 12% 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

Answer 1

I Appropriate Entries : Date Credit Sanol, 18) 344 786 of lease for Eye Deal) ول Record beginning of lease for Eye Deal Debit Cienewal Journal $3447861 Right of Use Asset (No te Lease Patable (To record beginning Record lease Payments made by Eye deal Date Jan 01/18 Lease Payable Cash W (To record lease Payment made by Eye deal on) Jan 01, 2018 Credil Debit $22500 $225ool Record lease Payments and intewest expense on Mauch 31, 2018 Credit Geneual joumal Date Debit $9669 adol 12831 March 31, 18 Inteues Expense Lease Payable Cash [ To Record lease Payment and interest expense by Eye Deal on March 31,2018) |$22580 Amo Record Amortization of Right of Use Asset Greneual Journal Desit Credit I Date $17239-30 $17239.30 March 31,18 Depreciation Amortization Expense Right of Use Asset [ To Reword depre ci ati im Amortai atim of right of use asset for eye Deal j of

Note : Since, Eye Deal op to metry leased the equipment from Insight Machines Machines becomes lessor. 1, 2018. Eye Deal Opto metry becomes lessee and Insight On January int commentement dade, a lesee initially, At the present value of remaining tease Payments lease teum, discounted wring used in We use in teuest measures the lease liability to be made over the rate implict in the lease. Sonce rewe rate Changed by Vessor. Lease Payments Payments that lease fiability are amounts due to lessor excluding any a lessee makes before the lease Commentervento In teuest rate Changed by less or = 12.17.0, प - 36). Per quateu. lease teum - 5 years or measuring 12 5x4 20 quaten le con Quaterly Payments - $ 22 sou kon dancer Since, first layment is made on stellinghence, ea for first Payment discounting factor is to Cal wation of lease Payable Present value of an annuity Due of $1,9:20, 13.1. is 15.3239. Present value of lease liability = $2a soo x 15:3238 = $344786. 2. As the first lay ment is made on steeting of lease. Commentemend, lesee recognises lease Payable and immidiabely Paid in cash, Interest Expense : Interest Expense on Mauch 31,2018 = [ (344786 - $22500) x 34.) $9668.58 049669. In teuest is Chauged on outsteinding balance. Since, first layment is made on starting of Period, outstanding Balance inteuest is changed is $ 322.286 ( $322786- $22 500) 3. on which

4. Caswation of Depreciation or Amortization Experye? Value of Right of Use Asset I lou Asset) = $ 344.786 Expected Residual Value Nilor lewy . lease teum 5 years Or do quater. Quatedly Amortization Expense $344786-0 20 Value of Asset - Residual value total number of qu ateuly Payments $17239. 3 each Quater Depreci cubi on I Amorhizah'ın Expense = $17239.30 each Qualer lf Depre cietim Expense is charged diveetly to Right of use Asset I lov asset), ROV Asser is credited. But if Depreciation expense is decodemuended they charged to acumulated Depreciation then accumulated deprecjalima is troch' Credited. 2. Appropriate Entries for Insight Machines : i Date Geneual ſou mal Janul, 2018 Record beginning of lease : Debit | Credit $ 344786 lease Receivable $300000 Cost of goods sold sales Revenue $344786 $ 300000 Equipment (to rewrd beginning of lease for Insighe Machines)

w Record lease Payment received by Insight Halhines Date Geneval Journal Credit Debit Ĵanol, 2018 1$22500 $22500 Cash Lease Receivable To record lease. Payment, received by) Insight machines Go crois Record Pevenue and Interest received by insight Machines Date Debit Credit 0334 March 31, 2018 $22500 $ 12831 Geneval Journal Cash lease Receivable ($22560 - $9669) In teuest Revenue To record interest and revenue received by în sight Machine $9 669 ' 92031 70 primiged how at