Question

Eastern Edison Company leased equipment from Hi-Tech Leasing on January 1, 2018.

Other information:
Lease term	4 years
Annual payments	$86,000 on January 1 each year
Life of asset	4 years
Implicit interest rate	9%
PV, annuity due, 4 periods, 9%	3.5313
PV, ordinary annuity, 4 periods, 9%	3.2397
Hi-Tech's cost of the equipment	$303,692

There is no expected residual value.

Required:
Prepare appropriate journal entries for Hi-Tech Leasing for 2018 and 2019. 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

	Year	Annual Payments	PVIF@9%	Present Value of Lease Payments	Interest
	0	86000	1	86000	0
	1	86000	0.917431	78899.08	7100.917
	2	86000	0.84168	72384.48	13615.52
	3	86000	0.772183	66407.78	19592.22
			Total	303691.3
	Date/S.N.	Account title & Explanation				Debit	Credit
						Amount in $	Amount in $
	2018
	Jan-01	Investment in Lease				303691.3
			Leased asset				303691.3
		To record the transfer of leased asset to Lessee.
	Jan-01	Cash				86000
			Investment in Lease				86000
	2019
	Jan-01	Cash				86000
			Interest/Finance charges received				7101
			Investment in Lease				78899
	Dec-31	Interest/Finance charges received				7101
			Income summery				7101