Jasper Ltd enters into a non-cancellable lease agreement with Kevin Ltd to lease some machinery under the following conditions on 1 July 2018:

Duration

9 years

Life of Leased Asset

11 years

Unguaranteed Residual

$6 000

Lease Payment

$7 000 at inception of lease

Lease Payments in arrears

$5 000 per year (9 payments)

The interest rate implicit in the lease is 10%.

Required

What are the journal entries to record the lease payment at the inception of the lease and to record the first lease payment in the books of the lessee?

a.

(a) Journal entries to record the lease and payment on lease inception:

Dr

Right-of-use Asset

$38 340

Cr

Lease Liability

$38 340

Dr

Lease Liability

$7 000

Cr

Cash

$7 000

(a) Journal entry to record the first lease payment:

Dr

Lease Payment

$5 000

Cr

Cash

$5 000

b.

(b) Journal entries to record the lease and payment on lease inception:

Dr

Right-of-use Asset

$38 340

Cr

Lease Liability

$38 340

Dr

Lease Liability

$7 000

Cr

Cash

$7 000

(b) Journal entry to record the first lease payment:

Dr

Interest Expense

$3 134

Dr

Lease Liability

$1 866

Cr

Cash

$5 000

c.

(c) Journal entries to record the lease and payment on lease inception:

Dr

Right-of-use Asset

$35 795

Cr

Lease Liability

$35 795

Dr

Lease Liability

$7 000

C

Cash

$7 000

(c) Journal entry to record the first lease payment:

Dr

Interest Expense

$3 580

Dr

Leased Liability

$1 420

Cr

Cash

$5 000

d.

(d) Journal entries to record the lease and payment on lease inception:

Dr

Right-of-use Asset

$35 795

Cr

Lease Liability

$35 795

Dr

Lease Liability

$7 000

Cr

Cash

$7 000

(d) Journal entry to record the first lease payment:

Dr

Interest Expense

$2 880

Dr

Lease Liability

$2 120

Cr

Cash

$5 000

e.

None of the given answers.