On January 1, 2018, Allied Industries leased a high-performanceconveyer to Karrier Company for a four-year period ending December31, 2021, at which time possession of the leased asset will revertback to Allied. The equipment cost Allied $929,000 and has anexpected useful life of five years. Allied expects the residualvalue at December 31, 2022, will be $313,000. Negotiations led tothe lessee guaranteeing a $366,000 residual value.
Equal payments under the finance/sales-type lease are $213,000and are due on December 31 of each year with the first paymentbeing made on December 31, 2018. Karrier is aware that Allied useda 6% interest rate when calculating lease payments. (FV of $1, PVof $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)(Use appropriate factor(s) from the tablesprovided.)
Required:
1. Prepare the appropriate entries for bothKarrier and Allied on January 1, 2018, to record the lease.
2. Prepare all appropriate entries for bothKarrier and Allied on December 31, 2018, related to the lease.
