David Inc. leases equipment to its customers under noncancellable leases. On January 1, 2009, David leased equipment costing $200,000 to Goliath Co., terms 9 years. The rental cost was $22,000 payable in advance semiannually, plus $1,000 executory cost. The equipment had an estimated life of 15 years and sold for $266,513 with an estimated unguaranteed residual value of $40,000. The implicit interest rate is 12%. Collectibility of the lease payments is reasonably certain and no uncertainties exist relative to unreimbursable lessor costs
Note: Present value calculations are:
PV residual value, 18 periods at 6%: $40,000 x .3503 = $14,012
PV minimum lease payments: $22,000 X 11.4773 = $252,501
Prepare all journal entries for 1/1, 7/1, & 12/31 of 2009 on David’s and Goliath’s books. Round all calculations to the nearest dollar. Use straight-line depreciation.