The city of Morehead leased equipment. The life of the non cancellable lease is 10 years. Using an 8 percent interest rate, the present value of the lease payments is $905,861. The first payment of $125,000 is due when the lease begins, January 10, 2017. An additional payment of $125,000 is due on January 10th for each of the next 9 years. Prepare journal entries to record

1. Dr Equipment $ 905,861.0

Cr Lease Payable $ 905,861.00

2. Dr Lease Payable $ 125,000.00

Cr Cash$ 125,000.00

3. Dr Lease payable $ 115,000.00

Dr Interest Expense $ 10,000.00

Cr Cash $ 125,000.00

Explanation:

City of Morehead

Journal entries

1)

Dr Equipment $ 905,861.00

Cr Lease Payable$ 905,861.00

2)

Dr Lease Payable $ 125,000.00

Cr Cash $ 125,000.00

3)

Dr Lease payable $ 115,000.00

Dr Interest Expense (125000 x 8%)

$ 10,000.00

Cr Cash $ 125,000.00