Eastern Edison Company leased equipment from Hi-Tech Leasing on January 1, 2016.

Question

Eastern Edison Company leased equipment from Hi-Tech Leasing on January 1, 2016.

There is no expected residual value.

Prepare appropriate journal entries for Hi-Tech Leasing for 2016 and 2017. 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.)

Record the lease.Record the cash receipt for the annual payments.Record the entry for the interest revenue.Record the cash receipt for the annual payments.

Record the lease.

Record the cash receipt for the annual payments.

Record the entry for the interest revenue.

Record the cash receipt for the annual payments.

Record the entry for the interest revenue.

Eastern Edison Company leased equipment from Hi-Tech Leasing on January 1, 2016.

Explanation / Answer

Answer:

January 1, 2016:

Leased asset A/C Dr. $311208 ($87,000 x 3.5771)

To Lease payable A/C $311208

Lease payable A/C Dr. $87,000

To Cash A/C $87,000

December 31, 2016:

Interest expense A/C Dr. $17937 [($311208 - $87,000) x 8%]

To Interest payable A/C $17937

Depreciation expense A/C Dr. $ 77,802 ($311208/4)

To Accumulated depreciation A/C $77802

January 1, 2017:

Interest payable A/C Dr. $17937

Lease payable A/C Dr. $ 69063

To Cash A/C $87,000

December 31, 2017:

Interest expense A/C Dr. $12412 [($311208 - $87,000 - $69063) x 8%]

To Interest payable A/C $12412

Depreciation expense A/C Dr. $ 77802 ($311208/4)

To Accumulated depreciation A/C $77802

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