On January 1, 2021, Wetick Optometrists leased diagnostic equipment from Southern Corp., which had purchased the equipment at a cost of $1,473,530. The lease agreement specifies six annual payments of $320,000 beginning January 1, 2021, the beginning of the lease, and at each December 31 thereafter through 2025. The six-year lease term ending December 31, 2026 (a year after the final payment), is equal to the estimated useful life of the equipment. The contract specifies that lease payments for each year will increase on the basis of the increase in the Consumer Price Index for the year just ended. Thus, the first payment will be $320,000, and the second and subsequent payments might be different. The CPI at the beginning of the lease is 128. Southern routinely acquires diagnostic equipment for lease to other firms. The interest rate in these financing arrangements is 12%. (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.) Required: 1. Prepare the appropriate journal entries for Wetick to record the lease at its beginning. 2. Assuming the CPI is 132 at that time, prepare the appropriate journal entries related to the lease for Wetick at December 31, 2021.
On January 1, 2021, Wetick Optometrists leased diagnostic equipment from Southern Corp., which had purchased the equipment at a cost of $1,473,530. The lease agreement specifies six annual payments of $320,000 beginning January 1, 2021, the beginning of the lease, and at each December 31 thereafter through 2025. The six-year lease term ending December 31, 2026 (a year after the final payment), is equal to the estimated useful life of the equipment. The contract specifies that lease payments for each year will increase on the basis of the increase in the Consumer Price Index for the year just ended. Thus, the first payment will be $320,000, and the second and subsequent payments might be different. The CPI at the beginning of the lease is 128. Southern routinely acquires diagnostic equipment for lease to other firms. The interest rate in these financing arrangements is 12%. (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.) Required: 1. Prepare the appropriate journal entries for Wetick to record the lease at its beginning. 2. Assuming the CPI is 132 at that time, prepare the appropriate journal entries related to the lease for Wetick at December 31, 2021.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On January 1, 2021, Wetick Optometrists leased diagnostic equipment from Southern Corp., which had purchased the equipment at a
cost of $1,473,530. The lease agreement specifies six annual payments of $320,000 beginning January 1, 2021, the beginning of the
lease, and at each December 31 thereafter through 2025. The six-year lease term ending December 31, 2026 (a year after the final
payment), is equal to the estimated useful life of the equipment. The contract specifies that lease payments for each year will increase
on the basis of the increase in the Consumer Price Index for the year just ended. Thus, the first payment will be $320,000, and the
second and subsequent payments might be different. The CPI at the beginning of the lease is 128. Southern routinely acquires
diagnostic equipment for lease to other firms. The interest rate in these financing arrangements is 12%. (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.)
Required:
1. Prepare the appropriate journal entries for Wetick to record the lease at its beginning.
2. Assuming the CPI is 132 at that time, prepare the appropriate journal entries related to the lease for Wetick at December 31, 2021.
Complete this question by entering your answers in the tabs below.
Required 1 Required 2
Assuming the CPI is 132 at that time, prepare the appropriate journal entries related to the lease for Wetick at December 31,
2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your
intermediate calculations and final answers to the nearest whole dollar.)
General Journal
No
1
x Answer is complete but not entirely correct.
2
Date
December 31, 202 Lease expense
Interest expense
Lease payable
Cash
December 31, 202 Amortization expense
Right-of-use asset
< Required 1
Required 2 >
Debit
16,000 X
138,424 ✔
181,576 ✔
245,588 ✔
Credit
320,000 X
245,588 ✔
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