Headland Limited has signed a lease agreement with Lantus Corp. to lease equipment with an expected lifespan of eight years, no estimated salvage value, and a cost to Lantus, the lessor of $204,000. The terms of the lease are as follows:

		The lease term begins on January 1, 2019, and runs for 5 years.
		The lease requires payments of $44,875 at the beginning of each year starting January 1, 2019.
		At the end of the lease term, the equipment is to be returned to the lessor.
		Lantus implied interest rate is 5%, while Headlands borrowing rate is 6%. Headland uses straight-line depreciation for similar equipment. The year-end for both companies is December 31.

Assume that both companies follow ASPE. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1.Determine the present value of the minimum lease payments. (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275.)

Present Value

$Enter your answer in accordance to the question statement

Prepare Headlands lease amortization schedule using the effective interest method. (Round answers to 0 decimal places, e.g. 5,275.)

Date		Payment		Interest		Principal		Balance
January 1, 2019								$
January 1, 2019		$		$		$
January 1, 2020
January 1, 2021
January 1, 2022
January 1, 2023
		$		$		$

Prepare the 2019 journal entries for Headland Limited. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
2019
Jan. 1Dec. 31	Interest ExpenseAccumulated Depreciation-Leased EquipmentEquipment under LeaseObligations under LeaseMaintenance and Insurance ExpenseDepreciation ExpensePrepaid Maintenance and InsuranceInterest PayableCash
	CashEquipment under LeaseInterest ExpensePrepaid Maintenance and InsuranceInterest PayableMaintenance and Insurance ExpenseObligations under LeaseDepreciation ExpenseAccumulated Depreciation-Leased Equipment
	(To record inception of lease.)
Jan. 1Dec. 31	Accumulated Depreciation-Leased EquipmentDepreciation ExpenseInterest ExpenseEquipment under LeaseInterest PayablePrepaid Maintenance and InsuranceCashMaintenance and Insurance ExpenseObligations under Lease
	Maintenance and Insurance ExpenseCashPrepaid Maintenance and InsuranceDepreciation ExpenseInterest ExpenseAccumulated Depreciation-Leased EquipmentInterest PayableEquipment under LeaseObligations under Lease
	(To record lease payment.)
Jan. 1Dec. 31	CashObligations under LeaseInterest PayableEquipment under LeaseAccumulated Depreciation-Leased EquipmentInterest ExpenseMaintenance and Insurance ExpenseDepreciation ExpensePrepaid Maintenance and Insurance
	Obligations under LeaseMaintenance and Insurance ExpenseInterest ExpenseAccumulated Depreciation-Leased EquipmentCashDepreciation ExpensePrepaid Maintenance and InsuranceInterest PayableEquipment under Lease
	(To record interest.)
Jan. 1Dec. 31	Equipment under LeasePrepaid Maintenance and InsuranceDepreciation ExpenseInterest PayableCashInterest ExpenseMaintenance and Insurance ExpenseObligations under LeaseAccumulated Depreciation-Leased Equipment
	CashDepreciation ExpenseInterest ExpensePrepaid Maintenance and InsuranceAccumulated Depreciation-Leased EquipmentMaintenance and Insurance ExpenseInterest PayableObligations under LeaseEquipment under Lease
	(To record depreciation expense.)

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