Rauch Incorporated leases a piece of equipment to Donahue Corporation on January 1, 2020. The lease agreement called for annual rental payments of $4,892 at the beginning of each year of the 4-year lease. The equipment has an economic useful life of 6 years, a fair value of $25,000, a book value of $20,000, and both parties expect a residual value of $8,250 at the end of the lease term, though this amount is not guaranteed. Rauch set the lease payments with the intent of earning a 5% return, and Donahue is aware of this rate. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature.

Show the lease amortization schedule(s) for Donahue for all 4 years of the lease.

DONAHUE CORPORATION

Lease Amortization Schedule

Annuity-Due Basis

Date Annual Payment Interest on Liability Reduction of Lease

Lease Liability Liability

1/1/20

1/1/20

1/1/21

1/1/22

1/1/23

Lease Expense Schedule

Date Lease ExpenseInterest on Amortization of Carrying Valueof

(Straight-Line)Lease Liability ROU Asset ROU Asset

1/1/20

12/31/20

12/31/21

12/31/22

12/31/23

Show the journal entries for Donahue for 2020 and 2021.

Date Account Titles and Explanation Debit Credit

(a)

(b)

(To record the lease)

Date

(a)

(b)

(To record the lease payment)

Date

(a)

(b)

(c)

Date

(a)

(b)

Date

(a)

(b)

(c)

Suppose Donahue incurs initial direct costs of $750 related to the lease. Show the journal entries for 2020.

DateAccount Titles and ExplanationDebitCredit

(a)

(b)

(c)

(To record the lease)

Date

(a)

(b)

(To record the lease payment)

Date

(a)

(b)

(c)

What is the amount of the rental payments used in the lease agreement?

Rental payments: $

Show the entries for Rauch for 2020.

DateAccount Titles and ExplanationDebitCredit

(a)

(b)

Date

(a)

(b)

(To record the recognition of the revenue)

Date

(a)

(b)

(To record depreciation expense on the leased equipment)