On January 2, 2021, Gold Star Leasing Company leases equipment to Brick Co. with 5 equal annual payments of $160,000 each, payable beginning January 2, 2021. Brick Co. agrees to guarantee the $150,000 residual value of the asset at the end of the lease term. The expected value of the residual value is $50,000. Bricks incremental borrowing rate is 10%, however it knows that Gold Stars implicit interest rate is 8%. What journal entry would Brick Co. make at January 2, 2021 to record the lease?

PV Annuity Due PV Ordinary Annuity PV Single Sum

8%, 5 periods 4.31213 3.99271 .68508 .

10%, 5 periods 4.16986 3.79079 .62092 .

a. Right-of-Use Asset 598,449

Lease Liability 598,449

b. Right-of-Use Asset 758,449

Cash 160,000

Lease Liability 598,449

c. Right-of-Use Asset 689,940

Cash 160,000

Lease Liability 529,940

d. Right-of-Use Asset 707,342

Cash 160,000

Lease Liability 547,342

A lessee had a ten-year finance lease requiring equal annual payments. The reduction of the lease liability in year 2 should equal

a. the current liability shown for the lease at the end of year 1.

b. the current liability shown for the lease at the end of year 2.

c. the reduction of the lease liability in year 1.

d. one-tenth of the original lease liability.