On January 1, 2024, Central Industries leased a high-performance conveyer to Dynamic Company for a four-year period ending December 31, 2024, at which time possession of the leased asset will revert back to Central. The equipment cost Central $2,676,800 and has an expected useful life of 5 years. Central expects the residual value on December 31, 2028, will be $840,000. Negotiations led to the lessee guaranteeing a $916,000 residual value.

Equal payments under the finance/sales-type lease are $560,000 and are due on December 31 of each year with the first payment being made on December 31, 2024. Dynamic is aware that Central used a 5% interest rate when calculating lease payments.

Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

Required:

1. Prepare all appropriate journal entries for Dynamic Company to record the arrangement at its commencement, January 1, 2024, and on December 31, 2024.
2. Prepare all appropriate journal entries for Central Industries to record the arrangement at its commencement, January 1, 2024, and on December 31, 2024.

Journal entry worksheet

• Record the beginning of the lease for Dynamic.
• Record the lease payment for Dynamic.
• Record the receipt of the lease payment for Central.