A 3-year lease is initiated on January 1, 2015 for equipment with an expected useful life of 6 years. The Lessor is Rohan Asset Management Company (RAMC) and the lessee is Western Distributors Limited (WDL). The equipment reverts to RAMC upon expiration of the lease agreement. Three Payments are due to the RAMC in the amount of $180,000 per year beginning December 31, 2015.

An additional sum of $12,000 is to be paid annually by WDL for insurance. WDL guarantees a $15,000 residual value on December 31, 2017 to RAMC. The leased asset is expected to also have a $15,000 salvage value on December 31, 2017; therefore, the asset should be depreciated down to the $15,000 expected residual value. The lessee’s incremental borrowing rate is 14% (and the lessor’s implicit rate is 12%).

	PVIFA 14%	PVIFA 12%
Year 1	0.8772	0.8929
Year 2	0.7695	0.7972
Year 3	0.6750	0.7118

Required:

a. Record all the journal entries in the books of the WDL over the life of the lease.

Answer rating: 100% (QA)

Entries in the books WDL Date Particulars Debit Credit 01012015 Lease Equipment Dr 443019 To Lease Liability 443019 31122015 Lease Liabilty Dr 126838 ... View the full answer