On January 1, 2024, Nguyen Electronics leased equipment from Nevels Leasing for a four-year period ending December 31, 2027, at which time possession of the leased asset will revert back to Nevels. The equipment cost Nevels $779,677 and has an expected economic life of five years. Nevels expects the residual value on December 31, 2027, will be $103,000. Negotiations led to the lessee guaranteeing a $146,000 residual value. Equal payments under the lease are $203,000 and are due on December 31 of each year with the first payment being made on December 31, 2024. Nguyen is aware that Nevels used a 8% interest rate when calculating lease payments. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: Prepare the appropriate entries for both Nguyen and Nevels on January 1, 2024, to record the lease. Prepare all appropriate entries for both Nguyen and Nevels on December 31, 2024, related to the lease.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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On January 1, 2024, Nguyen Electronics leased equipment from Nevels Leasing for a four-year period ending December 31, 2027, at which time possession of the leased asset will revert back to Nevels.

  • The equipment cost Nevels $779,677 and has an expected economic life of five years.
  • Nevels expects the residual value on December 31, 2027, will be $103,000.
  • Negotiations led to the lessee guaranteeing a $146,000 residual value.
  • Equal payments under the lease are $203,000 and are due on December 31 of each year with the first payment being made on December 31, 2024.
  • Nguyen is aware that Nevels used a 8% interest rate when calculating lease payments.

Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

Required:

  1. Prepare the appropriate entries for both Nguyen and Nevels on January 1, 2024, to record the lease.
  2. Prepare all appropriate entries for both Nguyen and Nevels on December 31, 2024, related to the lease.

 

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