Question

. Northwestern Edison Company leased equipment from Hi-Tech Leasing on January 1, 2020. Hi-Tech manufactured the equipment at a cost of $110,000.

Other information:

Lease term	3 years
Annual payments	$50,000 on January 1 each year
Life of asset	3 years
Implicit interest rate	8%
Incremental rate	8%
PV, annuity due, 3 periods, 8%	2.7833
PV, ordinary annuity, 3 periods, 8%	2.5771

There is no expected residual value.

Required: Prepare appropriate journal entries for Hi-Tech Leasing for 2020 and 2021. Assume a December 31 year-end. Round your answers to the nearest whole dollar amounts

Answer 1

Requirement:- Prepare appropriate journal entries for Hi-Tech Leasing for 2020 and 2021. Assume a December 31 year-end.

Solution:- Journal entries

Date Account Titles and Explanation Debit Credit Jan.1 2020 Lease receivable ($50,000 x 3) $150,000 Unearned interest revenue (Difference) $10,835 Equipment (50,000 * 2.7833) $139,165 (To record the lease) Jan 1,2021 Cash $50,000 Lease Receivables $50,000 (To record the receipt of annual payment) Dec. 31 2020 Unearned interest revenue $7,133.2 Interest Revenue $7,133.2 [($139,165 - $50,000) x 8%] (To record the interest revenue)

Jan.1 2021 Cash $50,000 Lease Receivables $50,000 (To record the receipt of annual payment) Dec. 31 2021 Unearned interest revenue $3,703.86 Interest Revenue $3,703.86 [($139,165 - $50,000 - $42,866.80 *) x 8%] ($50,000 - $7,133.20) = $42,866.80

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