Answer:
a.
Debit Credit
December 31, 2017
Lease Equipment Under Capital Leases $166,794
Lease Liability $166,794
December 31, 2017/January 1, 2018
Lease Liability $40,000
Cash $40,000
b. Debit Credit
December 31, 2018
Depreciation Expense $23,828
Accumulated Depreciation $23,828
December 31, 2018/January 1, 2019
Interest Expense $12,679
Lease Liability $27,321
Cash $40,000
c. Debit Credit
December 31, 2019
Depreciation Expense $23,828
Accumulated Depreciation $23,828
December 31, 2019/January 1, 2020
Interest Expense $9,947
Lease Liability $30,053
Cash $40,000
d. Balance Sheet
December 31,2019
Property Plant and Equipment Current Liabilities
Leased Equipment Under Capital Leases $166,794 Lease Liability $33,058
Less Accumulated Depreciation $47,656
$119,138 Long Term
Lease Liability $36,362
Explanation:
a. The journal entries, that should be recorded on January 1, and December 31, 2017, by Steel would be as follows:
Debit Credit
December 31, 2017
Lease Equipment Under Capital Leases $166,794
Lease Liability $166,794
December 31, 2017/January 1, 2018
Lease Liability $40,000
Cash $40,000
Lease Equipment Under Capital Leases=(40,000*PVIFA(10%,Years = 40,000*4.16986))= $166,794
b. The journal entries, that should be recorded on January 1 and December 31, 2018, by Steel would be as follows:
Debit Credit
December 31, 2018
Depreciation Expense $23,828
Accumulated Depreciation $23,828
December 31, 2018/January 1, 2019
Interest Expense $12,679
Lease Liability $27,321
Cash $40,000
Depreciation Expense= (166,794/7)=$23,828
Interest Expense [(166,794 - 40,000)*10%]=$12,679
Lease Liability=(40,000 - 12,679)=$27,321
c. The journal entries, that should be recorded on January 1, and December 31, 2019, by Steel would be as follows:
Debit Credit
December 31, 2019
Depreciation Expense $23,828
Accumulated Depreciation $23,828
December 31, 2019/January 1, 2020
Interest Expense $9,947
Lease Liability $30,053
Cash $40,000
d. The amounts that would appear on Steel's December 31, 2019, balance sheet relative to the lease arrangement would be as follows:
Balance Sheet
December 31,2019
Property Plant and Equipment Current Liabilities
Leased Equipment Under Capital Leases $166,794 Lease Liability $33,058
Less Accumulated Depreciation $47,656
$119,138 Long Term
Lease Liability $36,362
