On January 1, 2020, Martinez Animation sold a truck to Peete Finance for $44,000 and immediately leased it back. The truck was carried on Martinez’s books at $40,000. The term of the lease is 3 years, there is no bargain purchase option, and title does not transfer to Martinez at lease-end. The lease requires three equal rental payments of $12,500 at the end of each year (first payment on January 1, 2021). The appropriate rate of interest is 4%, the truck has a useful life of 5 years, and the residual value at the end of the lease term is expected to be $14,000, none of which is guaranteed. Prepare Martinez’s 2020 journal entries.
On January 1, 2020, Martinez Animation sold a truck to Peete Finance for $44,000 and immediately leased it back. The truck was carried on Martinez’s books at $40,000. The term of the lease is 3 years, there is no bargain purchase option, and title does not transfer to Martinez at lease-end. The lease requires three equal rental payments of $12,500 at the end of each year (first payment on January 1, 2021). The appropriate rate of interest is 4%, the truck has a useful life of 5 years, and the residual value at the end of the lease term is expected to be $14,000, none of which is guaranteed.
Prepare Martinez’s 2020
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Date
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Account Titles and Explanation
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Debit
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Credit
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1/1/2012/31/20
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| (To record sale of truck) | |||
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1/1/2012/31/20
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| (To record lease liability) | |||
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1/1/2012/31/20
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