I. Leases On January 1, 2020, Cage Company contracts to lease equipment for 5 years, agreeing to make a payment of $120,987 at the beginning of each year, starting January 1, 2020. The leased equipment is to be capitalized at $550,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Cages incremental borrowing rate is 6%, and the implicit rate in the lease is 5%, which is known by Cage. Title to the equipment transfers to Cage at the end of the lease. The asset has an estimated useful life of 5 years and no residual value.

(c) Prepare the journal entry to record the lease payment of January 1, 2021, assuming reversing entries are not made. (The assumption referenced in this question means that there was no initial accrual of the interest expense with a corresponding credit to interest payable. Therefore, there would be no reversing entry made at the time of payment (i.e. no debit to interest payable to reverse the accrual). So, what accounts would be affected when this journal entry is made assuming these facts?)

Account Titles and Explanations Credit (c) Date Jan. 1 2021 Lease Liability Debit 99,536 120.987 Cash (To record lease payment on Jan. 1 2021) AMORTIZATION SCHEDULE Reduction of Balance of Lease Lease Liability Liability You need to use formulas and cell references in the amortization schedule or your numbers may not agree to the grading schedule. Annual Lease Payment Interest (5%) on Liability Note: For the initial balance (cell F41), type in the amount (rounded to the nearest whole dollar) Date 01/01/20 01/01/20 01/01/21 01/01/22 01/01/23 01/01/24 $ $ $