Eye Deal Optometry leased visiontesting equipment from Insig

Eye Deal Optometry leased vision-testing equipment from Insight Machines on January 1, 2018. Insight Machines manufactured the equipment at a cost of $400,000 and lists a cash selling price of $459,714. Appropriate adjusting entries are made quarterly. (FV of S1. PY of $1. FA of $1, PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Related Information: Lease termm Quarterly lease payments Economic life of asset Interest rate charged by the lessor 5 years (20 quarterly periods) S30,000 at Jan. 1, 2018, and at Mar. 31, June 30, Sept. 30, and Dec. 31 thereafter. 12% Required: 1. Prepare appropriate entries for Eye Deal to record the arrangement at its beginning, January 1, 2018, and on March 31, 2018. 2. Prepare appropriate entries for Insight Machines to record the arrangement at its beginning, January 1, 2018, and on March 31, 2018

Solution

1).

Quarterly Payments = $30000

Quarterly Rate of Interest = 12%/4 = 3%

Period = 5 Year * 4 = 20 times

Present value of minimum lease payments = Quarterly Payments * PVA * (1.03)

= $30000 * 14.87747 * 1.03

= $459714

Journal Entry :- (In the Books of Eye Deal)

2). Journal Entry (in the Books of Insight Machines :-

Date	Particulars	Debit($)	Credit($)
Jan. 1, 2018	Leased Equipment A/c Dr.	459714
	To Lease Liability		459714
Jan. 1, 2018	Lease Liability A/c Dr.	30000
	To Cash		30000
Mar. 31, 2018	Lease Liability A/c Dr.	17109
	Interest Expense A/c Dr. (($459714-$30000)*3%)	12891
	To Cash		30000