On January 2 2018 Gold Star Leasing Company leases equipment

On January 2, 2018, Gold Star Leasing Company leases equipment to Brick Co. with 5 equal annual payments of $160,000 each, payable beginning January 2, 2018. Brick Co. agrees to guarantee the $150,000 residual value of the asset at the end of the lease term. The expected value of the residual value is $50,000. Brick\'s incremental borrowing rate is 10%, however it knows that Gold Star\'s implicit interest rate is 8%. What journal entry would Brick Co. make at January 2, 2018 to record the lease? 896, 5 periods 10%, 5 periods PV Annuity Due 4.31213 4.16986 PV Ordinary Annuity 3.99271 3.79079 Single Su 68508 62092 a. Right-of-Use Asset 598,449 Lease Liability 598,449 b. Right-of-Use Asset 758,449 Cash 160,000 Lease Liability 598,449 c. Right-of-Use Asset 689,940 Cash 160,000 Lease Liability 529,940 d. Right-of-Use Asset 707,342 Cash 160,000 Lease Liability 547,342

Solution

Answer is option B

Right-of-use asset 758449

Cash 160000

Lease liability 598449

Lease liability = (150000*4.16986)-(50000*0.68058)= 591450 which is near to given 598449 and thus answer will be option B.