Eastern purchased a machine for $500,000 and leased it to Injection, Inc. on January 1, 2013.
Lease description: Quarterly rental payments $32,629 - beginning of each quarter Lease term 5 years No residual, no BPO Economic life of machine 5 years Implicit interest and lessee's incremental borrowing rates 12% Fair value of asset $500,000
Collectibility of the rental payments is reasonably assured, and there are no lessor costs yet to be incurred. Depreciation is recorded at the end of each fiscal year (December 31).
Required: Prepare appropriate entries to record inception of the lease, first and second rental payments for a) Injection b) Eastern.