Question 3 (6 marks)

On December 31, 2019, Lewis Corp. (Lewis), a publicly accountable entity, leased a tractor from Jade Leasing Corp. (JLC). The lease term is for seven years, after which the asset must be returned to JLC. The annual lease payments are $45,000, with the first payment due on December 31, 2019. The interest rate implicit in the lease is 6% and is known to Lewis. Lewiss incremental borrowing rate is 5%.

The guaranteed residual value of the tractor at the end of the lease term is $50,000, and Lewis expects that the tractors fair value when returned to JLC will be $30,000.

Required:

Prepare all journal entries required by Lewis for the tractor lease on December 31, 2019, and for the year ended December 31, 2020