Brief Exercise 20-14

Cullumber Corporation, which uses ASPE, leased equipment it had specifically purchased at a cost of $194,200 for Waterway, the lessee. The term of the lease is 7 years, beginning January 1, 2020, with equal rental payments of $36,263 at the beginning of each year. Waterway pays all executory costs directly to third parties. The equipments fair value at the leases inception is $194,200. The equipment has a useful life of 8 years with no residual value. The lease has an implicit interest rate of 10%, no bargain purchase option, and no transfer of title. Collectibility is reasonably assured, with no additional costs to be incurred by Cullumber. Using tables, a financial calculator, or Excel functions, calculate the PV of the lease payments and prepare Cullumber Corporations January 1, 2020 journal entries at the inception of the lease.