21) On January 1, 2021, Allied Industries leased a high-performance conveyer to Karrier Company for a four-year period ending December 31, 2024, at which time possession of the leased asset will revert back to Allied. The equipment cost Allied $961,000 and has an expected useful life of five years. Allied expects the residual value at December 31, 2024, will be $305,000. Negotiations led to the lessee guaranteeing a $350,000 residual value. Equal payments under the finance/sales-type lease are $205,000 and are due on December 31 of each year with the first payment being made on December 31, 2021. Karrier is aware that Allied used a 7% interest rate when calculating lease payments. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare the appropriate entries for both Karrier and Allied on January 1, 2021, to record the lease.

• 1 Record the beginning of the lease for Karrier.

• 2 Record the beginning of the lease for Allied.

2. Prepare all appropriate entries for both Karrier and Allied on December 31, 2021, related to the lease.

• 1 Record the lease payment for Karrier.

• 2 Record amortization of the right-of-use asset for Karrier.

• 3 Record the lease payment by Allied.

No	Date	General Journal	Debit	Credit
1	January 01, 2021	Right-of-use asset
		Lease payable
2	January 01, 2021	Lease receivable
		Equipment

No	Date	General Journal	Debit	Credit
1	December 31, 2021	Interest expense
		Lease payable
		Cash		205,000
2	December 31, 2021	Amortization expense
		Right-of-use asset
3	December 31, 2021	Cash	205,000
		Interest revenue
		Lease receivable

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