On January 1, 2018, Maywood Hydraulics leased drilling equipment from Aqua Leasing for a five-year period ending December 31, 2021, at which time possession of the leased asset will revert back to Aqua. The equipment cost Aqua $432,398 and has an expected economic life of six years. Aqua expects the residual value at December 31, 2018, to be $68,000. Negotiations led to Maywood guaranteeing a $97,000 residual value.
Equal payments under the lease are $136,000 and are due on December 31 of each year with the first payment being made on December 31, 2021. Maywood is aware that Aqua used a 6% interest rate when calculating lease payments.
(FV of $1. PV of $1. FVA of $1. PVA of $1, FVAD of $1 and PVAD of $1 (Use appropriate factor(s) from the tables provided.)
Required:
1. Prepare the appropriate entries for Maywood on January 1, 2018, and December 31, 2018, related to the lease. (If no entry is required for a transaction/event, select "No journal entry required" In the first account field.) View transaction list Journal entry worksheet
2. Record the beginning of the lease for Maywood Hydraulics. Note: Enter debits before credits.