On January 1, 2021, Shadow Industries (lessor) leased equipment to Bone Co. (lessee) for a 5-year period under non-cancelable agreement, after which the leased asset will revert back to Shadow Industries.

• The equipment costs Shadow $660,000 and normally sells for $744,388.
• Equal payments under the lease are $160,000 and are due on December 31 of each year, with the first payment made on January 1, 2021.
• The equipment has a useful life of 6 years.
• The equipments residual value is $80,000 at the end of the lease term.
• The rate implicit in the lease used by the Shadow is 8%, Bones incremental borrowing rate is 10% and lessee is aware of lessors rate.

Assume that the equipments residual value is not guaranteed by Bone. The asset was appraised at $50,000 at the end of the lease term. Which of the following journal entries would Bone record for return of the equipment at the end of the lease term?

A. debit loss of $30,000.

B. debit cash $30,000.

C. credit equipment inventory of $30,000.

D. debit equipment inventory of $30,000.