Question

Southwestern Edison Company leased equipment from Hi-Tech Leasing on January 1, 2018. Hi-Tech manufactured the equipment...

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.)

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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)
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