Krauss Leasing Company signs a lease agreement on January 1, 2013, to lease elec

ID: 2370342 • Letter: K

Question

Krauss Leasing Company signs a lease agreement on January 1, 2013, to lease electronic equipment to Stewart Company. The term of the noncancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement.

1. Stewart has the option to purchase the equipment for $16,040 upon termination of the lease. 2. The equipment has a cost and fair value of $228,700 to Krauss Leasing Company. The useful economic life is 2 years, with a salvage value of $16,040. 3. Stewart Company is required to pay $6,580 each year to the lessor for executory costs. 4. Krauss Leasing Company desires to earn a return of 8% on its investment. 5. Collectibility of the payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor.
(a) Prepare the journal entries on the books of Krauss Leasing to reflect the payments received under the lease and to recognize income for the years 2013 and 2014. 1. Stewart has the option to purchase the equipment for $16,040 upon termination of the lease. 2. The equipment has a cost and fair value of $228,700 to Krauss Leasing Company. The useful economic life is 2 years, with a salvage value of $16,040. 3. Stewart Company is required to pay $6,580 each year to the lessor for executory costs. 4. Krauss Leasing Company desires to earn a return of 8% on its investment. 5. Collectibility of the payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor.