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Prepare the journal entry on january to record the lease

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Warren Corporation signs an agreement on January 2, 2014, to lease delivery equipment for a five-year period. The current market value of the delivery equipment on January 2, 2014, is $225,000. The lease agreement calls for annual payments of $50,040. The first payment is made on January 2, 2014, all other payments are made on December 31 of each year. The lease agreement calls for an 8% interest rate. The estimated remaining life of the delivery equipment is six years. Ownership of the delivery equipment will transfer to Warren Corporation at the end of the lease term.

Question a) Prepare the journal entry on January 2, 2014, to record the lease agreement and make the first lease payment.

Question b) Prepare the entry on December 31, 2014, to record the second lease payment and the accrual of interest.

Reference no: EM132568046

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