On January 1, 2018, Wetick Optometrists leased diagnostic equipment from Southern Corp., which had purchasedthe equipment at a cost of $1,437,237. The lease agreement specifies six annual payments of $300,000 beginning January 1, 2018, the beginning of the lease, and at each December 31 thereafter through 2022. The six-yearlease term ending December 31, 2023 (a year after the final payment), is equal to the estimated useful life of theequipment. The contract specifies that lease payments for each year will increase on the basis of the increase inthe Consumer Price Index for the year just ended. Thus, the first payment will be $300,000, and the second andsubsequent payments might be different. The CPI at the beginning of the lease is 120. Southern routinely acquiresdiagnostic equipment for lease to other firms. The interest rate in these financing arrangements is 10%.Required:1. Prepare the appropriate journal entries for Wetick and Southern to record the lease at its beginning.2. Assuming the CPI is 124 at that time, prepare the appropriate journal entries related to the lease for Wetick atDecember 31, 2018,.
On January 1, 2018, Wetick Optometrists leased diagnostic equipment from Southern Corp., which had purchased
the equipment at a cost of $1,437,237. The lease agreement specifies six annual payments of $300,000 beginning January 1, 2018, the beginning of the lease, and at each December 31 thereafter through 2022. The six-year
lease term ending December 31, 2023 (a year after the final payment), is equal to the estimated useful life of the
equipment. The contract specifies that lease payments for each year will increase on the basis of the increase in
the Consumer Price Index for the year just ended. Thus, the first payment will be $300,000, and the second and
subsequent payments might be different. The CPI at the beginning of the lease is 120. Southern routinely acquires
diagnostic equipment for lease to other firms. The interest rate in these financing arrangements is 10%.
Required:
1. Prepare the appropriate
2. Assuming the CPI is 124 at that time, prepare the appropriate journal entries related to the lease for Wetick at
December 31, 2018,.
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