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On January 2, 2018, Sheridan Leasing Company leases equipment to Brick Co. with 5 equal annual...

On January 2, 2018, Sheridan Leasing Company leases equipment to Brick Co. with 5 equal annual payments of $169000 each, payable beginning January 2, 2018. Brick Co. agrees to guarantee the $131500 residual value of the asset at the end of the lease term. The expected value of the residual value is $50000. Brick’s incremental borrowing rate is 8%, however it knows that Sheridan’s implicit interest rate is 6%. What journal entry would Brick Co. make at January 2, 2018 to record the lease? PV Annuity Due PV Ordinary Annuity PV Single Sum 6%, 5 periods 4.46511 4.21236 0.74726 8%, 5 periods 4.31213 3.99271 0.68058

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Answer #1
Particulars Amount Present value factor @6% Amount
equal installments 169000                                       4.46511 $        754,604
Residual value 81500(131500-50000)                                       0.74726 $          60,902
Total $        815,505
Entry:
Accounts debit credit
Right of use asset $                                  815,505
cash $        169,000
lease liability $        646,505
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