On January 1, 2014, P&P Products entered into an agreement to lease a piece of e

Q: On January 1, 2014, P&P Products entered into an agreement to lease a piece of e

the original lease entry(ies) on January 1, 2014: Debit Assets $600000 Debit Interest on Lease $48000 Credit Cash $168000 Credit Lease Liability $480000 (Being payment of principle capital of $120000 and interest for first year $48000 was booked. Lease liability for further 4 years was acknowledged)

ID: 2427785 • Letter: O

Question

On January 1, 2014, P&P Products entered into an agreement to lease a piece of equipment from Beta Company, Inc. (the lessor). The lease term is 5 years and the interest rate is 8%. The first payment is made on January 1, 2014. The machine has a fair value of $600,000, a useful life of 6 years and no residual value. P&P Products does not know the interest rate that Beta uses. Assume that the entries have not yet been made on the books of P&P Products.

Required: Make the original lease entry(ies) on January 1, 2014.

Explanation / Answer

the original lease entry(ies) on January 1, 2014:

Debit Assets $600000

Debit Interest on Lease $48000

Credit Cash $168000

Credit Lease Liability $480000

(Being payment of principle capital of $120000 and interest for first year $48000

was booked. Lease liability for further 4 years was acknowledged)

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On January 1, 2014, P&P Products entered into an agreement to lease a piece of e

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