Recording Finance Lease Journal Entries Guaranteed Residual Value

Smith, the lessee, signs an 8-year lease agreement of a floor of a building on December 31, 2020, that requires annual payments of $154,000, beginning immediately. The residual value is guaranteed to the lessor of $110,000 at the end of the lease term. Smith estimates that the residual will have a value of $66,000 at the end of the lease term. Smith is aware of the lessors implicit rate of interest of 7%. Record Smiths journal entries on December 31, 2020, assuming that the lease is properly classified as a finance lease.

• Note: Round your answers to the nearest whole dollar.

Date	Account Name	Dr.	Cr.
Dec. 31, 2020
	To record asset and liability
Dec. 31, 2020
	To record cash lease payment