Brief Exercise 21A-23
Marigold Corporation enters into a 7-year lease of equipment on December 31, 2016, which requires 7 annual payments of $37,500 each, beginning December 31, 2016. In addition, Marigold
guarantees the lessor a residual value of $18,700 at the end of the lease. However, Marigold believes it is probable that the expected residual value at the end of the lease term will be $8,700. The
equipment has a useful life of 7 years. Assume that for Lost Ark Company, the lessor, collectibility of lease payments is probable and the carrying amount of the equipment is $170,000.
Prepare Lost Ark's 2016 and 2017 journal entries, assuming the implicit rate of the lease is 9% and this is known to Marigold. (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
December 31, 2016
(To record the lease)
December 31, 2016
(To record receipt of lease payment)
December 31, 2017
Debit
Credit