Accounting 2036. Assignment A Chapter #20

On July 19, 20X4, the Yuan Yuan Guo Corporation, a manufacturer and distributor of DVD recorders, entered a lease with Zhiyin Huang Rental Inc. Yuan Yuan Guo agreed to lease 20 DVDs for a period of six years beginning July 15, 20X4. Other lease terms as follows:

Annual Lease Payments beginning 01/07/X4

Manufacturing Cost of each DVD

Normal Selling Price of each DVD

Estimated economic (EUL) for the DVD's

Implicit rate in the lease (not known by Zhiyin Huang)

$ 2,003

1300

525

9 years

10.0

%

Estimated Residual Value of each DVD at the end of the lease term (not guaranteed by Zhiyin Huang)

5 80

Zhiyin Huang can borrow at 12.0 percent and agrees to assume full responsibility for all repairs and maintenance of the machines. Zhiyin Huang will return the DVDs to Yuan Yuan Guo. Since Zhiyin Huang is a good credit risk, Yuan Yuan Guo is certain to collect the lease payments and will not incur any additional costs after the date of the lease agreement.

Both Companies follow ASPE

Required:

1. Determine how Yuan Yuan Guo, the lessor, and Zhiyin Huang, the lessee, should classify the lease
2. Prepare all required journal entries for the Lessee on July 1* 20X4.
3. Prepare the required journal entries for the Lessee on December 31 20X4 (assuming a December 31* Fiscal Year End).
4. Prepare the required journal entries forthe Lessee on July 1#, 20X5
5. Prepare the required journal entries for the Lessee on December 314 20X5 (assuming a December 31# Fiscal Year End Assume that when the DVD's are returned to Yuan Yuan Guo at the and of the lease term the residual value of each DVD is only $70 Prepare the journal entry to record the return of the machines by Zhiyin Huang