Intermediate Accounting

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Python Company leased equipment from Hope Leasing on January 1, 2006. Hope purchased the equipment at a cost of $232,666.

Other information:

Lease term 3 years
Annual payments $90,000 on January 1 each year
Life of asset 3 years
Fair value of asset $232,666
Implicit interest rate 8%
Incremental rate 8%

There is no expected residual value.

Required:
Prepare appropriate journal entries for Python for 2006. Assume straight-line depreciation and a December 31 year-end.

Answer:
January 1, 2006:


December 31, 2006:

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