On January 1, 2019, Carius Corporation (lessee) entered into a lease agreement for a warehouse facility with Patel Storage, Inc. (lessor). The lease agreement calls for 6 equal lease payments of $15,000 to be made at the beginning of each year. Carius' incremental borrowing rate and Patel's implicit rate are both 7%.
The fair value of the facility at the lease's inception is $270,000 and the estimated useful life is 20 years. There are no provisions for a purchase option and the equipment does not transfer to Carius at the end of the lease term. Patel will be able to lease the facility to another lessee after the conclusion of this lease term.
The following is the lease amortization schedule:
Payment Interest Lease Liability Reduction Lease Liability Remaining
$76,503 1/1/2019 $15,000 $- $15,000 $61,503
$15,000 1/1/2020 $15,000 $4,305 $10,695 $50,808
$15,000 1/1/2021 $15,000 $3,557 $11,443 $39,365
$15,000 1/1/2022 $15,000 $2,756 $12,244 $27,120
$15,000 1/1/2023 $15,000 $1,898 $13,102 $14,019
$15,000 1/1/2024 $15,000 $981 $14,019 $-
$90,000 $13,497 $76,503
Refer to the original problem, assume that Carius incurred initial direct costs associated with the lease agreement totaling $9,000. Prepare the January 1, 2019, entry for Carius to reflect the lease.