Diego Leasing Company agrees to provide La Jolla Company with equipement under a noncancelable lease for 5 years. The equipment has a 5-year life, cost Diego $25,000, and will have no residual value when the lease term ends. The fair value of the equipment is $30,000. La Jolla agrees to pay all executory costs ( $ 500 per year） throughtout the lease period directly to a third part On January 1, 2019, the equipment is delivered. Diego expects a 14% return on its net investment. The five equal annual rents are payable in advance starting January 1, 2019. 1. Assuming this is a sales-type lease for the Diego and a finance lease for the La Jolla, prepare a table summarizing the lease and interest payments suitable for use by either party. 2. Next Level On the assumption that both companies adjust and close books each December 31, prepare journal entries relating to the lease for both companies through December 31, 2020, based on data derived inthe table. Assume that La Jolla depreciates similar equipment by the straight-line method.
Diego Leasing Company agrees to provide La Jolla Company with equipement under a noncancelable lease for 5 years. The equipment has a 5-year life, cost Diego $25,000, and will have no residual value when the lease term ends. The fair value of the equipment is $30,000. La Jolla agrees to pay all executory costs ( $ 500 per year） throughtout the lease period directly to a third part On January 1, 2019, the equipment is delivered. Diego expects a 14% return on its net investment. The five equal annual rents are payable in advance starting January 1, 2019. 1. Assuming this is a sales-type lease for the Diego and a finance lease for the La Jolla, prepare a table summarizing the lease and interest payments suitable for use by either party.
2. Next Level On the assumption that both companies adjust and close books each December 31, prepare
the table. Assume that La Jolla
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