Instructions Diego Leasing Company agrees to provide La Jolla Company with equipment under a noncancelable lease for 5 years. The equipment has a 5-year life, cost Diego $25,000, and will have no residual value when the lease term ends. The fair value of the equipment is $30,000. La Jolla agrees to pay all executory costs ($500 per year) throughout the lease period directly to a third party. On January 1, 2019, the equipment is delivered. Diego expects a 14% return on its net investment. The five equal annual rents are payable in advance starting January 1, 2019. Required: 1. Assuming this is a sales-type lease for the Diego and a finance lease for the La Jolla, prepare a table summarizing the lease and interest payments suitable for use by either party. 2. Next Level On the assumption that both companies adjust and close books each December 31, prepare journal entries relating to the lease for both companies through December 31, 2020, based on data derived in the table. Assume that La Jolla depreciates similar equipment by the straight-line method. Chart of Accounts-Lessor CHART OF ACCOUNTS Diego Leasing Company General Ledger ASSETS 111 Cash 121 Accounts Receivable 122 Lease Receivable 123 Equipment Leased to Others 141 Inventory 152 Prepaid Insurance REVENUE 411 Sales Revenue 433 Interest Income EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 181 Equipment 512 Utilities Expense 189 Accumulated Depreciation 514 Executory Costs 521 Salaries Expense LIABILITIES 532 Bad Debt Expense Chart of Accounts-Lessor 141 Inventory 152 Prepaid Insurance 181 Equipment 189 Accumulated Depreciation LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Interest 261 Income Taxes Payable 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 514 Executory Costs 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense EQUITY 311 Common Stock 331 Retained Earnings Chart of Accounts-Lessee CHART OF ACCOUNTS La Jolla Company General Ledger ASSETS 111 Cash 121 Accounts Receivable 141 Inventory 152 Prepaid Insurance 180 Equipment REVENUE 411 Sales Revenue 433 Interest Income 189 Accumulated Depreciation 190 Right-of-Use Asset LIABILITIES 211 Announte Daunhle EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 514 Executory Costs 515 Amortization Expense 521 Salarinn Evnanne Chart of Accounts-Lessee 152 Prepaid insurance 180 Equipment LATENOLD 189 Accumulated Depreciation 190 Right-of-Use Asset LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Interest 253 Lease Liability 261 Income Taxes Payable 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 514 Executory Costs 515 Amortization Expense 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense EQUITY 311 Common Stock 331 Retained Earnings Analysis 1 2 La Jolla Company (Lessee) Lease Payment Interest at 14% on Balance of Lease Date Required Unpaid Obligation Liability $ Diego Company Lease Rental Interest at 14% on Date Lease Receivable Collected Lease Receivable 5 January 1, 2019 6 January 1, 2019 7 December 31, 2019 January 1, 2020 9 December 31, 2020 10 January 1, 2021 11 December 31, 2021 12 January 1, 2022 13 December 31, 2022 14 January 1, 2023 General Journal-Lessor 1 2 3 4 5 6 7 GENERAL JOURNAL DATE ACCOUNT TITLE PAGE 1 POST. REF. DEBIT CREDIT Prepare journal entries for Diego Leasing Company, Lessor, for 2020. PAGE 1 GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF DEBIT CREDIT 1 2 3 4 General Journal-Lessee 20. On the assumption that La Jolla Company adjust and close books each December 31, prepare journal entries relating to the lease for the company through December 31, 2020, based on data derived in the table. Assume that La Jolla depreciates similar equipment by the straight-line method. Prepare journal entries for La Jolla Company, Lessee, for 2019. General Journal Instructions 1 2 PAGE 1 GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF DEBIT CREDIT General Journal-Lessee Prepare journal entries for La Jolla Company, Lessee, for 2020. PAGE 1 GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF DEBIT CREDIT 1 2 3 4 6 7