Eastern Edison Company leased equipment from Hi-Tech Leasing on January 1, 2018. Other information:

Lease term 5 years
Annual payments $79,000 on January 1 each year
Life of asset 5 years
Implicit interest rate 7%
PV, annuity due, 5 periods, 7% 4.3872
PV, ordinary annuity, 5 periods, 7% 4,1002

Hi-Tech's cost of the equipment $346,589 There is no expected residual value.

Required:
Prepare appropriate journal entries for Hi-Tech Leasing for 2018 and 2019. Assume a December 31 year-end.

January 1, 2018

Dr Lease receivable 395,000

Cr Unearned interest revenue 48,411

Cr Equipment inventory 346,589

Dr Cash 79,000

Cr Lease receivable 79,000

December 31, 2018

Dr Unearned interest revenue 18,731

Cr Interest revenue 18,731

January 2019

Dr cash 79,000

Cr lease receivable 79,000

December 31 2019

Dr Unearned interest revenue 14,512

Cr Interest revenue 14,512

Explanation:

Preparation of Journal entries for Hi-Tech Leasing for 2018 and 2019.

January 1, 2018

Dr Lease receivable 395,000

($79,000 x 5)

Cr Unearned interest revenue 48,411

(395,000-346,589)

Cr Equipment inventory 346,589

Dr Cash 79,000

Cr Lease receivable 79,000

December 31, 2018

Dr Unearned interest revenue 18,731

[($346,589- $79,000) x 7%]

Cr Interest revenue 18,731

January 2019

Dr cash 79,000

Cr lease receivable 79,000

December 31 2019

Dr Unearned interest revenue 14,512

[($346,589- $79,000-$60,269) x 7%]

(79,000-18,731=60,269)

Cr Interest revenue 14,512

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