Question

Brief Exercise 21A-22

Pearl Corporation enters into a 6-year lease of equipment on December 31, 2016, which requires 6 annual payments of $36,100 each, beginning December 31, 2016. In addition, Pearl guarantees the lessor a residual value of $19,800 at the end of the lease. However, Pearl believes it is probable that the expected residual value at the end of the lease term will be $9,800. The equipment has a useful life of 6 years.

Prepare Pearls’ December 31, 2016, journal entries assuming the implicit rate of the lease is 10% and this is known to Pearl. (Credit account titles are automatically indented when amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places e.g. 5,275.)

Click here to view the factor table.

Date

Account Titles and Explanation

Debit

Credit

December 31, 2016

(To record the lease liability)

December 31, 2016

(To record lease payment)

Date

Account Titles and Explanation

Debit

Credit

December 31, 2016

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(To record the lease liability)

 

 

December 31, 2016

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(To record lease payment)

 

 

 



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