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, 2018, 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 181 Equipment REVENUE 411 Sales Revenue 433 Interest Income EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 189 Accumulated Depreciation 514 Executory Costs 521 Salaries Expense 532 Bad Debt Expense LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Interest 281 Income Taxes Payable 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense EQUITY 311 Common Stock 331 Retained Earnings 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 payme Additional Instructions 1 2 La Jolla Company (Lessee) Date Summary Table Score: 5/25 Lease Payment Required Interest at 14% on Unpaid Obligation Balance of Lease Liability 3 Diego Company Lease Rental Date Collected Interest at 14% on Lease Receivable Lease Receivable 5 January 1, 2019 6 January 1, 2019 $30,000.00 $7,665.00 22,335.00 7 December 31, 2019 3,127.00 25,462.00 8 January 1, 2020 7,665.00 17,797.00 9 December 31, 2020 2,492.00 20,288.00 10 January 1, 2021 7,665.00 12,623.00 11 December 31, 2021 1,767.00 14,391.00 12 January 1, 2022 7,665.00 6,726.00 13 December 31, 2022 939.00 7,665.00 14 January 1, 2023 7,665.00 0.00 2a. On the assumption that Diego Leasing 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. Prepare journal entries for Diego Leasing Company, Lessor, for 2019. General Journal Instructions How does grading work? PAGE 1 GENERAL JOURNAL Score: 87/101 DATE ACCOUNT TITLE 1 Jan.1 Lease Receivable 2 2 Sales Revenue 144 3 Jan.1 Cost of Goods Sold 4 Equipment 19 5 Jan.1 Cash POST. REF. DEBIT CREDIT 30,000.00 30,000.00 25,000.00 25,000.00 7,665.00 6 Lease Receivable 7,665.00 7 Dec. 31 Lease Receivable 3,127.00 8 Interest Income 3,127.00 Prepare journal entries for Diego Leasing Company, Lessor, for 2020. How does grading work? DATE 1 Jan. 1 Cash 2 Lease Receivable 3 Dec. 31 Lease Receivable 4 Interest Income GENERAL JOURNAL ACCOUNT TITLE PAGE 1 Score: 43/51 POST. REF. DEBIT CREDIT 7,665.00 7,665.00 2,492.00 2,492.00 2c. 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 How does grading work? PAGE 1 GENERAL JOURNAL Score: 101/126 DATE ACCOUNT TITLE POST. RER DEBIT CREDIT 1 Jan. 1 Right-of-Use Asset 30,000.00 2 Lease Liability 30,000.00 3 Jan.1 Lease Liability 7,665.00 Cash 7,665.00 5 Dec. 31 Interest Expense 3,127.00 6 Lease Liability 3,127.00 7 Dec. 31 Amortization Expense 5,000.00 Right-of-Use Asset 5,000.00 9 Jan 1 Lease Liability 7,665.00 10 Cash 7,665.00 Feedback Prepare journal entries for La Jolla Company, Lessee, for 2020. How does grading work? GENERAL JOURNAL PAGE 1 Score: 71/101 DATE 1 ACCOUNT TITLE POST. REF DEBIT CREDIT Jan.1 Right-of-Use Asset 30,000.00 " Lease Liability 30,000.00 Jan.1 Lease Liability 7,665.00 Cash 7,665.00 5 Dec. 31 Interest Expense 2,492.00 6 Lease Liability 2,492.00 7 Dec. 31 Amortization Expense 5,000.00 Right-of-Use Asset 5,000.00 Points: 20.04/25