On January 1, 2024, Maywood Hydraulics leased drilling equipment from Aqua Leasing for a four-year period ending
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Question:
On January 1, 2024, Maywood Hydraulics leased drilling equipment from Aqua Leasing for a four-year period ending December 31, 2027, at which time possession of the leased asset will revert back to Aqua.
- The equipment cost Aqua $414,430 and has an expected economic life of five years.
- Aqua and Maywood expect the residual value at December 31, 2027, to be $52,000.
- Negotiations led to Maywood guaranteeing a $73,000 residual value.
- Equal payments under the lease are $104,000 and are due on December 31 of each year with the first payment being made on December 31, 2024.
- Maywood is aware that Aqua used a 7% interest rate when calculating lease payments.
Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
Required:
1. & 2. Prepare the appropriate entries for Maywood on January 1, 2024 and December 31, 2024, related to the lease.
Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to the nearest whole dollar.
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