Final answer:
The journal entries for Metlock Corporation on December 31, 2019, can be calculated using the formula for a present value of an ordinary annuity and the present value of the lease payments and the guaranteed residual value. The journal entries include the lease receivable, lease liability, equipment, loss on the guaranteed residual value, depreciation expense, and interest expense. The interest expense is calculated based on the lease liability balance and the implicit rate of the lease.
Step-by-step explanation:
The journal entries for Metlock Corporation on December 31, 2019, assuming an implicit rate of the lease of 10%, would be as follows:
- Lease Receivable - $216,662.42
([$41,100 * (1 - 1 / (1 + 0.10)^7)] / 0.10) - Lease Liability - $216,662.42
([$41,100 * (1 - 1 / (1 + 0.10)^7)] / 0.10) - Lease Liability - $22,000.00
($18,400 * (1 + 0.10)) - Equipment - $238,662.42
($216,662.42 + $22,000.00) - Lease Receivable - $9,200.00
(Metlock's guaranteed residual value) - Loss on Guaranteed Residual Value - $9,200.00
Lease Liability - $9,200.00 - Depreciation Expense - $34,095.92
($238,662.42 / 7) - Interest Expense - $21,566.24
($216,662.42 * 0.10) - Lease Liability - $14,529.68
($34,095.92 - $21,566.24)
In the journal entries, the lease receivable and lease liability are both calculated using the formula for a present value of an ordinary annuity. The equipment is recorded at the present value of the lease payments and the guaranteed residual value. The loss on the guaranteed residual value and the depreciation expense are recorded over the useful life of the equipment. The interest expense is calculated based on the lease liability balance and the implicit rate of the lease.