On December 31, 2017, Toby’s Ice Cream Farm entered into a lease agreement for new milking machines with annual payments of $47,000 for 4 years with the first payment due immediately. The milking machines are is expected have a useful life of six years and have an ordinary selling price of $300,000. The lessor expects a return of 6.5% on this type of lease, which approximates Toby’s marginal borrowing rate. On January 1, 2019, the lease is renegotiated to be extended by three years and lease payments increase to $60,000 per year, effective immediately. The total expected useful life of the machines is now expected to be seven years. Record the journal entries required for this lease from lease inception through to adjusting entries required at the end of 2019.
