Southwestern Edison Company leased equipment from Hi-Tech Leasing on January 1,

Question

Southwestern Edison Company leased equipment from Hi-Tech Leasing on January 1, 2018. Hi-Tech manufactured the equipment at a cost of $92,500. Other information: Lease term 4 years Annual payments $45,000 on January 1 each year Life of asset 4 years Fair value of asset $165,285 Implicit interest rate 6% Incremental rate 6% 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.)

Explanation / Answer

Date General Journal Debit Credit January 1 Lease receivable($45,000 x 4) $180,000 Cost of goods sold $92,500 Unearned interest revenue $14,715 Sales revenue $165,285 Equipment inventory $92,500 Cash $45,000 Lease receivable $45,000 December 31 Unearned interest revenue[($165,285 - $45,000) x 6%] $7,217 Interest revenue $7,217

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