On January 1, 2019, a lessor agrees to rent a truck with fair value and carrying value of $145,151 for a period of five years
On January 1, 2019, a lessor agrees to rent a truck with fair value and carrying value of $145,151 for a period of five years at an annual rental of $34,500 first payable at the commencement date. The truck's residual value is estimated to be $19,500. The interest rate implicit in the lease is 14%, and the lessee cannot readily determine this. The lessee's incremental borrowing rate is 13%. Previous analysis has already concluded that this is a direct financing lease for the lessor.
Requirement a. Compute the lessor's net investment in the lease at initial recognition.
Requirement b. Compute the value of the lessee's ROU asset and lease liability at initial recognition.
Requirement c. Prepare the lessor's journal entries for each of January 1, 2019, December 31, 2019, and January 1, 2020.
Requirement d. Prepare the lessee's journal entries for each of January 1, 2019, December 31, 2019, and January 1, 2020.
Requirement e. Record the lessor's journal entries on January 1,2023,to derecognize the net investment in the lease assuming that the truck's actual residual value is (i)$22,500;(ii)$3,800;or (iii)$35,500.
Requirement f. Record the lessee's journal entries on January 1, 2023, to derecognize the net investment in the lease assuming that the truck's actual residual value is (i) $22,500; (ii) $3,800; or (iii) $35,500.
Requirement g. Prepare the lessee's journal entries for each of January 1,2019, December 31, 2019, and January 1, 2020. Assume that the residual value is not guaranteed. 
Date Accounts Debit Credit Jan. 1 2019 Net investment in lease (lease receivable) Cash Truck Date Accounts Debit Credit Dec. 31 2019 Net investment in lease (lease receivable) Finance income Date Accounts Debit Credit Jan. 1 2020 Cash Net investment in lease (lease receivable) Date Accounts Debit Credit Jan. 1 2019 Right-of-use asset Lease liability Cash Date Accounts Debit Credit Dec. 31. 2019 Interest expense Lease liability Date Accounts Debit Credit Dec. 31 2019 Depreciation expense Accumulated depreciation Date Accounts Debit Credit Jan. 1 2020 Lease liability Cash Date Accounts Debit Credit Jan. 1 2023 Truck Net investment in lease (lease receivable) Date Accounts Debit Credit Jan. 1 2023 Cash Truck Net investment in lease (lease receivable) Date Accounts Debit Credit Jan. 1 2023 Truck Net investment in lease (lease receivable) Date Accounts Debit Credit Jan. 1 2023 Lease liability Gain on derecognition of lease liability Date Accounts Debit Credit Jan. 1 2023 Accumulated depreciation Right-of-use asset Date Accounts Debit Credit Jan. 1 2023 Lease liability Cash Gain on derecognition of lease liability Date Accounts Debit Credit Jan. 1 2023 Accumulated depreciation Right-of-use asset Date Accounts Debit Credit Jan. 1 2023 Lease liability Gain on derecognition of lease liability Date Accounts Debit Credit Jan. 1 2023 Accumulated depreciation Right-of-use asset Date Accounts Debit Credit Jan. 1 2019 Right-of-use asset Lease liability Cash Date Accounts Debit Credit Dec. 31. 2019 Interest expense Lease liability Date Accounts Debit Credit Dec. 31. 2019 Depreciation expense Accumulated depreciation Date Accounts Debit Credit Jan. 1 2020 Lease liability Cash Date Accounts Debit Credit Jan. 1 2019 Net investment in lease (lease receivable) Cash Truck Date Accounts Debit Credit Dec. 31 2019 Net investment in lease (lease receivable) Finance income Date Accounts Debit Credit Jan. 1 2020 Cash Net investment in lease (lease receivable) Date Accounts Debit Credit Jan. 1 2019 Right-of-use asset Lease liability Cash Date Accounts Debit Credit Dec. 31. 2019 Interest expense Lease liability Date Accounts Debit Credit Dec. 31 2019 Depreciation expense Accumulated depreciation Date Accounts Debit Credit Jan. 1 2020 Lease liability Cash Date Accounts Debit Credit Jan. 1 2023 Truck Net investment in lease (lease receivable) Date Accounts Debit Credit Jan. 1 2023 Cash Truck Net investment in lease (lease receivable) Date Accounts Debit Credit Jan. 1 2023 Truck Net investment in lease (lease receivable) Date Accounts Debit Credit Jan. 1 2023 Lease liability Gain on derecognition of lease liability Date Accounts Debit Credit Jan. 1 2023 Accumulated depreciation Right-of-use asset Date Accounts Debit Credit Jan. 1 2023 Lease liability Cash Gain on derecognition of lease liability Date Accounts Debit Credit Jan. 1 2023 Accumulated depreciation Right-of-use asset Date Accounts Debit Credit Jan. 1 2023 Lease liability Gain on derecognition of lease liability Date Accounts Debit Credit Jan. 1 2023 Accumulated depreciation Right-of-use asset Date Accounts Debit Credit Jan. 1 2019 Right-of-use asset Lease liability Cash Date Accounts Debit Credit Dec. 31. 2019 Interest expense Lease liability Date Accounts Debit Credit Dec. 31. 2019 Depreciation expense Accumulated depreciation Date Accounts Debit Credit Jan. 1 2020 Lease liability Cash
