Question

Southwestern Edison Company leased equipment from Hi-Tech Leasing on January 1, 2018. Hi-Tech manufactured the equipment at a cost of $87,000. Other information: Lease term 4 years Annual payments $34,000 on January 1 each year Life of asset 4 years Fair value of asset $121,621 Implicit interest rate 8% Incremental rate 8% There is no expected residual value. Required: Prepare appropriate journal entries for Hi-Tech Leasing for 2018. Assume a December 31 year-end. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to the nearest whole dollar amounts.)

Answer 1

Solution:

Journal Entries - Hi-Tech Leasing
Date	Particulars	Debit	Credit
1-Jan-18	Cash Dr	$34,000.00
	Lease receivables Dr	$87,621.00
	To Sales revenue		$121,621.00
	(Being equipment sold on lease)
1-Jan-18	Cost of goods sold Dr	$87,000.00
	To Inventory		$87,000.00
	(To record cost of goods sold)
31-Dec-18	Interest receivables Dr ($87,621*8%)	$7,010.00
	To Interest revenue		$7,010.00
	(To record interest revenue accrued)