Metlock Corporation enters into a 6-year lease of equipment on January 1, 2017, which requires 6 annual payments of $38,200 each, beginning January 1, 2017. In addition, Metlock guarantees the lessor a residual value of $18,500 at the end of the lease. However, Metlock believes it is probable that the expected residual value at the end of the lease term will be $10,900. The equipment has a useful life of 7 years. Assume that for Lost Ark Company, the lessor, collectability of lease payments is probable and the carrying amount of the equipment is $208,718. Prepare Lost Ark’s 2016 and 2017 journal entries, assuming the implicit rate of the lease is 10% and this is known to Metlock.
Metlock Corporation enters into a 6-year lease of equipment on January 1, 2017, which requires 6 annual payments of $38,200 each, beginning January 1, 2017. In addition, Metlock guarantees the lessor a residual value of $18,500 at the end of the lease. However, Metlock believes it is probable that the expected residual value at the end of the lease term will be $10,900. The equipment has a useful life of 7 years. Assume that for Lost Ark Company, the lessor, collectability of lease payments is probable and the carrying amount of the equipment is $208,718.
Prepare Lost Ark’s 2016 and 2017 journal entries, assuming the implicit rate of the lease is 10% and this is known to Metlock.
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