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Prepare appropriate entries

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Question - Elf Leasing purchased a machine for $500,000 and leased it to IGA, Inc., on January 1, 2016.

Lease description:

Quarterly rental payments $32,629 at beginning of each period

Lease term 5 years (20 quarters)

No residual value; no BPO

Economic life of machine 5 years

Implicit interest rate and lessee's incremental borrowing rate 12%

Fair value of asset $500,000

Collectibility of the rental payments is reasonably assured, and there are no lessor costs yet to be incurred.

Required: Prepare appropriate entries for both IGA and Elf Leasing from the inception of the lease through the second rental payment on April 1, 2016. Depreciation is recorded at the end of each fiscal year (December 31). Hint: You should have a total of six journal entries. Dates should be Jan 1 and April 1. You will need to calculate the amount of interest expense or revenue that applies to the April 1 payment.

Reference no: EM132052429

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