The Boulder Company Leased Office Equipment to the Boulder Corporation

The Boulder Company leased office equipment to the Boulder Corporation on January 1, 2014. Information regarding the lease agreement is as follows: The lease qualifies as a direct financing lease.
The term of the lease is eight years, with annual rentals of $7,000 to be paid at the beginning of each year. There is no bargain purchase option.
The estimated unguaranteed residual value of the equipment at the end of the lease term is $5,000.
The Boulder Corporation will pay the executory costs of $5,000.
The present value of the minimum lease payments, yielding a return of 11%, is $39,985.40
The factor for the present value of $1 for eight years at 11% is 0.43393.
Required:
Prepare the Boulder Company's 2014 journal entries regarding the lease.

Correct Answer:

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