Keller Corporation (the lessee) entered into a general equipment lease with Dallo Company (the lessor) on January 1 of Year 1. The following information pertains to this lease agreement:

1.	The equipment reverts back to the lessor at the end of the lease, and there is no bargain purchase option.
2.	The lease term is 8 years and requires annual payments of $10,000 at the beginning of each year.
3.	The fair value of the equipment at lease inception is $100,000. Assume that the present value of lease payments discounted at a 10% interest rate is $58,684.19.
4.	The equipment has an estimated economic life of 20 years and has zero residual value at the end of this time.

Required:

Prepare the journal entry that Keller Corporation would make during the first year of the lease assuming that the lease is classified as an operating lease.

CHART OF ACCOUNTSKeller CorporationGeneral Ledger

	ASSETS
111	Cash
121	Accounts Receivable
141	Inventory
152	Prepaid Insurance
181	Equipment
189	Accumulated Depreciation
190	Right-of-Use Asset

	LIABILITIES
211	Accounts Payable
231	Salaries Payable
250	Unearned Revenue
253	Lease Liability
261	Income Taxes Payable

	EQUITY
311	Common Stock
331	Retained Earnings

	REVENUE
411	Sales Revenue

	EXPENSES
500	Cost of Goods Sold
511	Insurance Expense
512	Utilities Expense
514	Lease Expense
521	Salaries Expense
532	Bad Debt Expense
540	Interest Expense
541	Depreciation Expense
545	Amortization Expense
559	Miscellaneous Expenses
910	Income Tax Expense

Prepare the journal entry that Keller Corporation would make during the first year of the lease assuming that the lease is classified as an operating lease.

General Journal Instructions

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GENERAL JOURNAL

Score: 41/75

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