Blackmore Company signed a non$-$cancelable lease contract and leased a construction machine on January $1,2015$ for $5$ years. According to the terms of the agreement, the payments would be yearly. Blackmore Company will pay $$40,000$ at the beginning of each year, starting from January $1,2015(5$ payments$).$ The interest rate of the agreement is $12\%$ per year. The useful life is estimated as $5$ years. The residual value is estimated as zero at the end of its useful life. Straight$-$line method of depreciation is utilized.

Required:

a$)$ Make the journal entries for this lease for the lessee using both net and gross method. Show

the effects of the entries on the balance sheets and income statements.

b$)$ Make the journal entries for this lease for the lessor using both net and gross method. Show

the effects of the entries on the balance sheets and income statements.

Dates

Lease

Liability Principal

Lease

Payments

Lease

Liability

Remained Interest

Principal

Paid

Principal

Remained

Jan., $1,2015$ $$200\mathrm{.}000,00$ $$161\mathrm{.}493,97-$ $$200\mathrm{.}000,00--$ $$161\mathrm{.}493,97$

Jan., $1,2015$ $$200\mathrm{.}000,00$ $$161\mathrm{.}493,97$ $$40\mathrm{.}000,00$ $$160\mathrm{.}000,00-$ $$40\mathrm{.}000,00$ $$121\mathrm{.}493,97$

Jan., $1,2016$ $$160\mathrm{.}000,00$ $$121\mathrm{.}493,97$ $$40\mathrm{.}000,00$ $$120\mathrm{.}000,00$ $$14\mathrm{.}579,28$ $$25\mathrm{.}420,72$ $$96\mathrm{.}073,25$

Jan., $1,2017$ $$120\mathrm{.}000,00$ $$96\mathrm{.}073,25$ $$40\mathrm{.}000,00$ $$80\mathrm{.}000,00$ $$11\mathrm{.}528,79$ $$28\mathrm{.}471,21$ $$67\mathrm{.}602,04$

Jan., $1,2018$ $$80\mathrm{.}000,00$ $$67\mathrm{.}602,04$ $$40\mathrm{.}000,00$ $$40\mathrm{.}000,00$ $$8\mathrm{.}112,24$ $$31\mathrm{.}887,76$ $$35\mathrm{.}714,29$

Jan., $1,2019$ $$40\mathrm{.}000,00$ $$35\mathrm{.}714,29$ $$40\mathrm{.}000,00$ $$0,00$ $$4\mathrm{.}285,71$ $$35\mathrm{.}714,29$ $$0,00$

Total $$200\mathrm{.}000,00$ $$38\mathrm{.}506,03$ $$161\mathrm{.}493,97$BLACKMORE COMPANY$($A$)$

Blackmore Company signed a non$-$cancelable lease contract and leased a construction machine on January $1,2015$ for $5$ years. According to the terms of the agreement, the payments would be yearly. Blackmore Company will pay $$40,000$ at the beginning of each year, starting from January $1,2015(5$ payments$).$ The interest rate of the agreement is $12\%$ per year. The useful life is estimated as $5$ years. The residual value is estimated as zero at the end of its useful life. Straight$-$line method of depreciation is utilized.

Required:

a$)$ Make the journal entries for this lease for the lessee using both net and gross method. Show the effects of the entries on the balance sheets and income statements.

b$)$ Make the journal entries for this lease for the lessor using both net and gross method. Show the effects of the entries on the balance sheets and income statements.

$\backslash$table$[[,\backslash$table$[[$Lease$],[$Liability$]],$Principal,$\backslash$table$[[$Lease$],[$Payments$]],\backslash$table$[[$Lease$],[$Liability$],[$Remained$]],$Interest,$\backslash$table$[[$Principal$],[$Paid$]],\backslash$table$[[$Principal$],[$Remained$]]],[$Jan$.,1,2015,$$$200\mathrm{.}000,00,$$$161\mathrm{.}493,97,-,$$$200\mathrm{.}000,00,-,-,$$$161\mathrm{.}493,97$