On January 1, 2021, Central Industries leased a high-performance conveyer to Dynamic Company for a four-year period ending December 31, 2021, at which time possession of the leased asset will revert back to Central. The equipment cost Central $1,912,000 and has an expected useful life of five years. Central expects the residual value at December 31, 2025, will be $600,000. Negotiations led to the lessee guaranteeing a $680,000 residual value. Equal payments under the finance/sales-type lease are $400,000 and are due on December 31 of each year with the first payment being made on December 31, 2021. Dynamic is aware that Central used a 5% interest rate when calculating lease payments. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) 1. Prepare the appropriate journal entries for both Dynamic and Central on January 1, 2021, to record the lease. 2. Prepare all appropriate journal entries for both Dynamic and Central on December 31, 2021, related to the lease.
On January 1, 2021, Central Industries leased a high-performance conveyer to Dynamic Company for a four-year period ending December 31, 2021, at which time possession of the leased asset will revert back to Central. The equipment cost Central $1,912,000 and has an expected useful life of five years. Central expects the residual value at December 31, 2025, will be $600,000. Negotiations led to the lessee guaranteeing a $680,000 residual value.
Equal payments under the finance/sales-type lease are $400,000 and are due on December 31 of each year with the first payment being made on December 31, 2021. Dynamic is aware that Central used a 5% interest rate when calculating lease payments. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
1. Prepare the appropriate
2. Prepare all appropriate journal entries for both Dynamic and Central on December 31, 2021, related to the lease.
A lease is defined as a contractual agreement incorporated between two business entities where one entity provides an asset for use to another entity in exchange for periodic payments. The entity taking the asset on lease is referred to as lessor and the entity giving the asset on lease is defined as lessee. The asset may be leased for short-term or long-term depending upon the usage and terms of the lease contract.
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