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