Southern Edison Company leased equipment from Hi-Tech Industries on January 1, 2020. Hi-Tech

Industries manufactured the equipment at the cost of $78,000.

Additional information:

Lease term	3 years
Annual payments	$40,000 on January 1 each year
Life of asset	4 years
Lessors implicit rate	8%
Lessees incremental rate of borrowing	8%
PV of annuity due, 3 periods, 8%	2.7833
PV of ordinary annuity, 3 periods, 8%	2.5771

The lease is non-cancelable, the ownership remains with lessor, there is no bargain purchase option, and there is no

expected residual value.

1- The appropriate journal entry(s) by the lessee to record the lease transaction at the inception of the lease is:

Prepaid rent	40,000
Cash		40,000
Right-of use asset	111,332
Lease liability		111,332
Lease liability	40,000
Cash		40,000
Leased asset	120,000
Lease liability		120,000
Lease liability	40,000
Cash		40,000
None of the above

A

B)

C)

2. the appropriate journal entry(s) by the lessor to record the lease transaction at the

inception of the lease is:

Unearned rent revenue	40,000
Cash		40,000
Lease receivable	111,332
Equipment inventory		111,332
Cash	40,000
Lease receivable		40,000
Lease receivable	111,332
Cost of goods sold	78,000
Equipment inventory		78,000
Sales revenue		111,332
Cash	40,000
Lease receivable		40,000
None of the above