Question Prepare the journal entries Leasing AG would make in 2020 related to the lease arrangement.  Leasing AG agrees to lease equipment to Fat Choi Furniture on January 1, 2020. The followinginformation relates to the lease agreement.1. The term of the lease is 8 years with no renewal option, and the machinery has an estimatedeconomic life of 9 years.2. The cost of the machinery is $1,312,500, and the fair value of the asset on January 1, 2020, is$1,750,000.3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residualvalue of $125,000. Fat Choi Furniture estimates that the expected residual value at the endof the lease term will be $100,000. Fat Choi Furniture amortizes all of its leased equipmenton a straight-line basis.4. The lease agreement requires equal annual rental payments, beginning on January 1, 2020.5. The collectibility of the lease payments is probable.6. Fat Choi Furniture's incremental borrowing rate is 6%. Leasing AG desires a 5% rate ofreturn on its investments, and Fat Choi Furniture is aware of it. Both companies consider thelease as finance lease.

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Prepare the journal entries Leasing AG would make in 2020 related to the lease arrangement. 

Transcribed Image Text: Leasing AG agrees to lease equipment to Fat Choi Furniture on January 1, 2020. The followinginformation relates to the lease agreement.1. The term of the lease is 8 years with no renewal option, and the machinery has an estimatedeconomic life of 9 years.2. The cost of the machinery is $1,312,500, and the fair value of the asset on January 1, 2020, is$1,750,000.3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residualvalue of $125,000. Fat Choi Furniture estimates that the expected residual value at the endof the lease term will be $100,000. Fat Choi Furniture amortizes all of its leased equipmenton a straight-line basis.4. The lease agreement requires equal annual rental payments, beginning on January 1, 2020.5. The collectibility of the lease payments is probable.6. Fat Choi Furniture's incremental borrowing rate is 6%. Leasing AG desires a 5% rate ofreturn on its investments, and Fat Choi Furniture is aware of it. Both companies consider thelease as finance lease.
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Transcribed Image Text: Leasing AG agrees to lease equipment to Fat Choi Furniture on January 1, 2020. The followinginformation relates to the lease agreement.1. The term of the lease is 8 years with no renewal option, and the machinery has an estimatedeconomic life of 9 years.2. The cost of the machinery is $1,312,500, and the fair value of the asset on January 1, 2020, is$1,750,000.3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residualvalue of $125,000. Fat Choi Furniture estimates that the expected residual value at the endof the lease term will be $100,000. Fat Choi Furniture amortizes all of its leased equipmenton a straight-line basis.4. The lease agreement requires equal annual rental payments, beginning on January 1, 2020.5. The collectibility of the lease payments is probable.6. Fat Choi Furniture's incremental borrowing rate is 6%. Leasing AG desires a 5% rate ofreturn on its investments, and Fat Choi Furniture is aware of it. Both companies consider thelease as finance lease.