Eye Deal Optometry leased vision-testing equipment from Insight Machines on January 1, 2021. Insight Machines manufactured the equipment at a cost of $200,000 and lists a cash selling price of $250,177. Appropriate adjusting entries are made quarterly. (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.) Related Information: Lease term 5 years (20 quarterly periods) Quarterly lease payments $15,000 at Jan. 1, 2021, and at Mar. 31, June 30, Sept. 30, and Dec. 31 thereafter Economic life of asset 5 years Interest rate charged by the lessor 8% Required: 1. Prepare appropriate entries for Eye Deal to record the arrangement at its beginning, January 1, 2021, and on March 31, 2021. 2. Prepare appropriate entries for Insight Machines to record the arrangement at its beginning, January 1, 2021, and on March 31, 2021.

Explanation:

1    

For Eye deal:    

January 1,2018  Right of use asset        250177  

                        Lease payable                                      250177  

January 1,2018  Lease payable              15000  

                                 Cash                                             15000  

March 31,2018  Interest expense           4704=(250177-15000)*8%*3/12

                        Lease payable                10296  

                               Cash                                               15000

March 31,2018  Amortization expense  12509

`                                                            250177/20

                          Right of use asset                               12509  

2    

For insight machines:    

January 1,2018  Lease receivable         250177  

                      Cost of goods sold         200000  

                         Sales revenue                                      250177  

                              Equipment                                       200000  

January 1,2018           Cash                     15000  

                         Lease receivable                                 15000  

March 31,2018           Cash                      15000  

       Interest revenue                                                     4704          `                                                              =(250177-15000)*8%*3/12

      Lease receivable                                                    10296  

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