On January 1, 2020, Pina Construction Company contracts to lease equipment for 4 years, agreeing to make a payment of $103,730 at the beginning of each year, starting January 1, 2020. The leased equipment is to be capitalized at $381,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Pina's incremental borrowing rate is 6%, and the implicit rate in the lease is 6%, which is known by Pina. Title to the equipment transfers to Pina at the end of the lease. The asset has an estimated useful life of 4 years and no residual value. Click here to view factor tables. (b) Your answer is correct. Prepare the journal entries that Pina should record on January 1, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 0 decimal places, e.g. 5,275.) ccount Titles and Explanation Debit Credit Right-of-Use Asset 381,000 Lease Liability 381,000 To record the lease.) Lease Liability 103,730 Cash 103,730 To record lease payment.) (c) Your Answer Correct Answer (Used) Prepare the journal entries to record amortization of the leased asset and interest expense for the year 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Round answers to O decimal places, e.g. 5,275.) Iccount Titles and Explanation Debit Credit Amortization Expense 190,500 Right-of-Use Asset 190,500 To record amortization of the leased asset.) Interest Expense 16,636 Lease Liability 16,636 (d) Your answer is correct. Prepare the journal entry to record the lease payment of January 1, 2021, assuming reversing entries are not made. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 0 decimal places, e.g. 5,275.) Account Titles and Explanation Debit Credit Lease Liability 103,730 Cash 103,730 (e) What amounts will appear on the lessee's December 31, 2020, balance sheet relative to the lease contract? PINA COMPANY Balance Sheet (Partial) Assets Current Assets Right-of-Use Asset $ 190500 Liabilities Current Liabilities $ Noncurrent Liabilities $ e Textbook and Media
