On January 1, 2014, Renee Corp., a lessee, signed a five-year capital lease for new equipment. The lease requires annual payments of $8,000. The first payment is due on December 31, 2014. Renee guaranteed a residual value of $2,000. On December 31, 2018, Renee returned the asset to the lessor, and the asset was appraised at a value of $1,500. Renee should record which of the following on December 31, 2018?

Question

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On December 31, 2018, Renee should record a loss on disposal of leased equipment for the difference between the guaranteed residual value and the appraised value at the end of the lease term. The guaranteed residual value was $2,000, but the appraised value was only $1,500, resulting in a loss of $500 ($2,000 - $1,500). Therefore, Renee should record a $500 debit to loss on disposal of leased equipment. None of the other options are correct as they do not reflect the actual transaction or event.