Question

Scape Corp. manufactures telephony equipment. Scape leased equipment to User, Inc. on January 1, 2018. Scape produced the equipment at a cost of $5,100,000. Lease description: Quarterly rental payments $464,353 at beginning of each period Lease term 6 years (24 quarters) No residual value; no BPO Economic life of equipment 6 years Implicit interest rate and lessee’s incremental borrowing rate 12% Fair value of asset $8,100,000 Required: Prepare appropriate entries for both User and Scape from the beginning of the lease through the second rental payment on April 1, 2018. Depreciation and amortization are recorded at the end of each fiscal year (December 31).

Answer 1

ANSWER

USER (LESSEE)
Jan-01	Leased equipment	$8,100,000
	lease payable		$8,100,000
Jan-01	lease payable	$ 464,353
	cash		$464,353
Apr-01	interest expense	$152,712
	0.12/6*(8,100,000 -464,353 )
	lease payable	$311,641
	cash		$464,353
SCOPE(lessor)
Jan-01	Lease receivable	$8,100,000
	sales revenue		$8,100,000
Jan-01	cost of goods sold	$5,100,000
	inventory of equipment		$5,100,000
Jan-01	cash	$464,353
	lease receivable		$464,353
Apr-01	cash	$464,353
	lease receivable		$311,641
	interest revenue		$152,712

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