Problem 21-06 (Part Level Submission)

Ayayai Leasing Company agrees to lease equipment to Pina Corporation on January 1, 2020. The following information relates to the lease agreement.

1.		The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years.
2.		The cost of the machinery is $559,000, and the fair value of the asset on January 1, 2020, is $724,000.
3.		At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000. Pina estimates that the expected residual value at the end of the lease term will be 60,000. Pina amortizes all of its leased equipment on a straight-line basis.
4.		The lease agreement requires equal annual rental payments, beginning on January 1, 2020.
5.		The collectibility of the lease payments is probable.
6.		Ayayai desires a 10% rate of return on its investments. Pinas incremental borrowing rate is 11%, and the lessors implicit rate is unknown.

(Assume the accounting period ends on December 31.)

(d)

	Your answer is partially correct. Try again.

Prepare the journal entries Pina would make in 2020 and 2021 related to the lease arrangement. (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 0 for the amounts. Round answers to 0 decimal places e.g. 58,972. Record journal entries in the order presented in the problem.)

Date	Account Titles and Explanation	Debit	Credit
1/1/2012/31/201/1/2112/31/21
	(To record the lease.)
	(To record lease payment.)
1/1/2012/31/201/1/2112/31/21
	(To record amortization.)
	(To record interest.)
1/1/2012/31/201/1/2112/31/21
1/1/2012/31/201/1/2112/31/21
	(To record amortization.)
	(To record interest.)