Sarasota Manufacturing Ltd. has signed a lease agreement with LPN Leasing Inc. to lease some specialized manufacturing equipment. The terms of the lease are as follows:

		The lease is for 5 years commencing January 1, 2020.
		Sarasota must pay LPN $59,349 on January 1 of each year, beginning in 2020.
		Equipment of this type normally has an economic life of 6 years.
		LPN has concluded, based on its review of Sarasotas financial statements, that there is no unusual credit risk in this situation. LPN will not incur any further costs with regard to this lease.
		LPN purchases this equipment directly from the manufacturer at a cost of $218,600, and normally sells the equipment for $275,000.
		Sarasotas borrowing rate is 7%. LPNs implied interest rate is 6%, which is known to Sarasota at the time of negotiating the lease.
		Sarasota uses the straight-line method to depreciate similar equipment.
		Both Sarasota and LPN have calendar fiscal years (year end December 31), and follow ASPE.

Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE.

Prepare the journal entries on Sarasota Manufacturings books on January 1, 2020. (Credit account titles are automatically indented when the 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.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1, 2020	Cost of Goods SoldNo EntryUnearned Interest IncomeMaintenance and Insurance ExpenseCashLease ReceivableSalesDepreciation ExpenseInterest PayableInterest ExpenseAccumulated Depreciation-Leased EquipmentEquipment under LeasePrepaid Maintenance and InsuranceInterest IncomeInventoryObligations under Lease
	Interest IncomeObligations under LeaseInterest ExpenseInventoryInterest PayableCashNo EntryEquipment under LeaseMaintenance and Insurance ExpenseCost of Goods SoldLease ReceivableDepreciation ExpenseAccumulated Depreciation-Leased EquipmentSalesUnearned Interest IncomePrepaid Maintenance and Insurance
	(To record inception of lease.)
	Accumulated Depreciation-Leased EquipmentSalesInterest PayableObligations under LeaseUnearned Interest IncomeCashNo EntryEquipment under LeaseMaintenance and Insurance ExpenseInterest ExpenseInterest IncomeLease ReceivableInventoryCost of Goods SoldPrepaid Maintenance and InsuranceDepreciation Expense
	SalesEquipment under LeaseDepreciation ExpenseUnearned Interest IncomeCashMaintenance and Insurance ExpenseInterest PayableInterest IncomeObligations under LeaseCost of Goods SoldInterest ExpensePrepaid Maintenance and InsuranceLease ReceivableInventoryNo EntryAccumulated Depreciation-Leased Equipment
	(To record lease payment.)

Prepare the journal entries on LPN Leasings books on January 1, 2020. (Credit account titles are automatically indented when the 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.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1, 2020	Equipment under LeaseInterest PayableDepreciation ExpenseObligations under LeaseInterest IncomeLease ReceivableCost of Goods SoldSalesAccumulated Depreciation-Leased EquipmentNo EntryUnearned Interest IncomeInventoryPrepaid Maintenance and InsuranceMaintenance and Insurance ExpenseCashInterest Expense
	Depreciation ExpenseAccumulated Depreciation-Leased EquipmentSalesNo EntryCashInterest ExpenseInventoryInterest IncomeEquipment under LeaseUnearned Interest IncomeLease ReceivableObligations under LeaseCost of Goods SoldInterest PayableMaintenance and Insurance ExpensePrepaid Maintenance and Insurance
	Cost of Goods SoldNo EntryInterest PayableInterest IncomeEquipment under LeaseMaintenance and Insurance ExpenseInterest ExpenseSalesCashDepreciation ExpenseInventoryLease ReceivableObligations under LeaseAccumulated Depreciation-Leased EquipmentPrepaid Maintenance and InsuranceUnearned Interest Income
	SalesObligations under LeaseCashInventoryInterest PayablePrepaid Maintenance and InsuranceEquipment under LeaseUnearned Interest IncomeLease ReceivableNo EntryAccumulated Depreciation-Leased EquipmentInterest ExpenseInterest IncomeMaintenance and Insurance ExpenseCost of Goods SoldDepreciation Expense
	Interest PayableInventoryNo EntryCashObligations under LeaseAccumulated Depreciation-Leased EquipmentLease ReceivableCost of Goods SoldDepreciation ExpensePrepaid Maintenance and InsuranceSalesInterest IncomeInterest ExpenseMaintenance and Insurance ExpenseEquipment under LeaseUnearned Interest Income
	(To record inception of lease and cost of goods sold.)
	CashPrepaid Maintenance and InsuranceUnearned Interest IncomeNo EntryObligations under LeaseEquipment under LeaseInterest PayableCost of Goods SoldInventoryAccumulated Depreciation-Leased EquipmentLease ReceivableSalesMaintenance and Insurance Expense/PayableInterest IncomeInterest ExpenseDepreciation Expense
	Unearned Interest IncomeCost of Goods SoldInventoryPrepaid Maintenance and InsuranceInterest PayableInterest IncomeObligations under LeaseEquipment under LeaseNo EntryInterest ExpenseAccumulated Depreciation-Leased EquipmentCashLease ReceivableMaintenance and Insurance Expense/PayableSalesDepreciation Expense
	(Collection of lease payment.)

* choose from accounts listed in the boxes