Question -
Indiana Jones Company enters into a 5-year lease of equipment on January 1, 2012, which requires 5 annual payments of $42,800 each, beginning January 1, 2012. In addition, the lessee guarantees a residual value of $20,270 at lease-end. The equipment has a useful life of 5 years. Assume that for Lost Ark Company, the lessor, collectability is reasonably predictable, there are no important uncertainties concerning costs, and the carrying amount of the machinery is $187,614. Prepare Lost Ark's January 1, 2012, journal entries.
On January 1, 2012, Irwin Animation sold a truck to Peete Finance for $29,100 and immediately leased it back. The truck was carried on Irwin's books at $23,550. The term of the lease is 5 years, and title transfers to Irwin at lease-end. The lease requires five equal rental payments of $8,073 at the end of each year. The appropriate rate of interest is 12%, and the truck has a useful life of 5 years with no salvage value. Prepare Irwin's 2012 journal entries.