I have an equipment finance agreement for the purchase of an industrial asset. I have both the purchase price of the equipment and the total cost of the contract which has to be paid. How do I record the asset and liability accounts when the price of the equipment is less than the total amount of the equipment finance agreement cost. The equipment finance agreement comes with a finite amount of interest/financing factored into the total contract price, but does not state interest rate, just total amount for financing.
Example:
Asset/Equipment purchase price: $100,000
Equipment Finance Agreement: $120,000 over x years.
Do I set the asset up as actual purchase price and the contract as full amount due? If so how to I balance the asset and liability accounts with differing prices?
Do I set up the asset as total contract price including interest even though that is not the actual price of the equipment?
Example:
Asset/Equipment purchase price: $100,000
Equipment Finance Agreement: $120,000 over x years.
Do I set the asset up as actual purchase price and the contract as full amount due? If so how to I balance the asset and liability accounts with differing prices?
Do I set up the asset as total contract price including interest even though that is not the actual price of the equipment?