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31 January, 11:10

Teal Mountain Company leased equipment from Costner Company, beginning on December 31, 2019. The lease term is 8 years and requires equal rental payments of $54,782 at the beginning of each year of the lease, starting on the commencement date (December 31, 2019). The equipment has a fair value at the commencement date of the lease of $340,000, an estimated useful life of 8 years, and no estimated residual value. The appropriate interest rate is 8%. Click here to view factor tables. Prepare Teal Mountain's 2019 and 2020 journal entries, assuming Teal Mountain depreciates similar equipment it owns on a straight-line basis

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  1. 31 January, 12:42
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    See the explanation below.

    Explanation:

    Date Details Dr ($) Cr ($).

    31 Dec. '19 Leased equipment 340,000

    Lease liability 340,000

    To record liability form equipment lease ...

    31 Dec. '19 Leased liability 54,782

    Cash 54,782

    To record lease payment ...

    31 Dec. '20 Interest expense 22,817.44

    Lease liability 31,964.56

    Cash 54,782

    To record interest expense and lease payment ...

    31 Dec. '20 Depreciation expense 42,500

    Accumulated depreciation - lease 42,500

    To record right-of - use equipment amortization.

    Note:

    31 Dec. '20 Interest expense = (340,000 - 54,782) * 8% = $22,817.44

    31 Dec. '20 Lease liability = $54,782 - $22,817.44 = $31,964.56

    31 Dec. '20 Depreciation expense = 340,000 / 8 = $42,500
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