On January 1, 2018, Central Industries leased a high-performance conveyer to Dynamic Company for a four-year period ending December 31, 2018, at which time possession of the leased asset will revert back to Central. The equipment cost Central $1,912,000 and has an expected useful life of five years. Central expects the residual value at December 31, 2022, will be $600,000. Negotiations led to the lessee guaranteeing a $680,000 residual value.
Equal payments under the finance/sales-type lease are $400,000 and are due on December 31 of each year with the first payment being made on December 31, 2018. Dynamic is aware that Central used a 5% interest rate when calculating lease payments.
Required:
1. Prepare the appropriate journal entries for both Dynamic and Central on January 1, 2018, to record the lease.
2. Prepare all appropriate journal entries for both Dynamic and Central on December 31, 2018, related to the lease.

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The Answer of On January 1, 2018, Central Industries leased a high-performance conveyer to Dynamic Company for a four-year period ending December 31, 2018, at which time possession of the leased asset will revert back to Central. The equipment cost Central $1,912,000 and has an expected useful life of five years. Central expects the residual value at December 31, 2022, will be $600,000. Negotiations led to the lessee guaranteeing a $680,000 residual value.
Equal payments under the finance/sales-type lease are $400,000 and are due on December 31 of each year with the first payment being made on December 31, 2018. Dynamic is aware that Central used a 5% interest rate when calculating lease payments.
Required:
1. Prepare the appropriate journal entries for both Dynamic and Central on January 1, 2018, to record the lease.
2. Prepare all appropriate journal entries for both Dynamic and Central on December 31, 2018, related to the lease.

On January 1, 2018, Central Industries Leased a High-Performance Conveyer