Exercise 21A-16

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Laura Leasing Company signs an agreement on January 1, 2017, to lease equipment to Sheridan Company. The following information relates to this agreement.

1.		The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years.
2.		The fair value of the asset at January 1, 2017, is $62,000.
3.		The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $4,000, none of which is guaranteed.
4.		The agreement requires equal annual rental payments of $20,250 to the lessor, beginning on January 1, 2017.
5.		The lessees incremental borrowing rate is 5%. The lessors implicit rate is 4% and is unknown to the lessee.
6.		Sheridan uses the straight-line depreciation method for all equipment.

Assume that the expected residual value at the end of the lease is $10,000, such that the payments are $18,402. Click here to view the factor table. Prepare all of the journal entries for the lessee for 2017 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessees annual accounting period ends on December 31. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round answers to 0 decimal places, e.g. 5,265. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
1/1/17	enter an account title To record the lease on January 1 2017	enter a debit amount	enter a credit amount
	enter an account title To record the lease on January 1 2017	enter a debit amount	enter a credit amount
	(To record the lease)
	enter an account title To record lease liability on January 1 2017	enter a debit amount	enter a credit amount
	enter an account title To record lease liability on January 1 2017	enter a debit amount	enter a credit amount
	(To record lease liability)
12/31/17	enter an account title for the journal entry on December 31 2017	enter a debit amount	enter a credit amount
	enter an account title for the journal entry on December 31 2017	enter a debit amount	enter a credit amount
	enter an account title for the journal entry on December 31 2017	enter a debit amount	enter a credit amount