Question

2. On January 1, 2024, QuickStream Communications leased telephone equipment from Digium, Incorporated Digium’s cash selling price for the equipment is $1,438,383.

The lease agreement specifies six annual payments of $340,000 beginning December 31, 2024, and on each December 31 thereafter through 2029.
The six-year lease is equal to the estimated useful life of the equipment.
The contract specifies that lease payments for each year will increase by the higher of (a) the increase in the Consumer Price Index for the preceding year or (b) 3%.
The CPI at the beginning of the lease is 130. Digium routinely leases equipment to other firms.
The interest rate in these lease arrangements is 11%.
Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
Required: Prepare the appropriate journal entries for QuickStream to record the lease at its beginning date of January 1, 2024.

Answer 1

To record the lease at its beginning date of January 1, 2024, QuickStream should make the following journal entries: Debit: Lease Equipment $1,438,383, Credit: Lease Liability $1,438,383, Debit: Lease Liability $340,000, Credit: Cash $340,000.

Step-by-step explanation:

To record the lease at its beginning date of January 1, 2024, QuickStream should make the following journal entries:

1. Debit: Lease Equipment $1,438,383
2. Credit: Lease Liability $1,438,383
3. Debit: Lease Liability $340,000
4. Credit: Cash $340,000

Answer 2

The student's question involves making accounting entries for a lease agreement and calculating the present value of future lease payments at an 11% interest rate.

Step-by-step explanation:

The student is seeking assistance with accounting entries related to a lease agreement in a business context. On January 1, 2024, QuickStream Communications entered into a lease for telephone equipment, with the lease payments beginning December 31, 2024. The present value (PV) of the lease payments using the interest rate of 11% needs to be calculated to determine the lease liability and right-of-use asset to be recognized on QuickStream's balance sheet at the beginning of the lease.

To address this question properly, more specific details or calculations would be needed, such as the PV factor for an 11% rate over six years. However, the key information required for the journal entry includes calculating the present value of the lease payments and then debiting the right-of-use asset and crediting the lease liability. In a real-world scenario, this would typically involve using an Excel spreadsheet, a financial calculator, or PV tables to obtain the present value of the lease payments.