Exercise 21-6 Prepare all necessary journal entries for Crosley for 2014. Date A
ID: 2427667 • Letter: E
Question
Exercise 21-6
Prepare all necessary journal entries for Crosley for 2014.
Date
Account Titles and Explanation
Debit
Credit
1/1/14
(To record the lease.)
(To record the first lease payment.)
12/31/14
Exercise 21-6
Crosley Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2014. The lease is for an 10-year period and requires equal annual payments of $35,596 at the beginning of each year. The first payment is received on January 1, 2014. Crosley had purchased the machine during 2013 for $163,000. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by Crosley. Crosley set the annual rental to ensure an 9% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Crosley at the termination of the lease.
Explanation / Answer
Amount of Lease Receivable = Sum of Present values of all lease payments of $ 35596 for 10 years starting at begining of Jan 1-2014.
= PV(0.09,10,35596,0,1) = $249002.81.
Journal Entries
Date
Account Titles and Explanation
Debit
Credit
1/1/2014
Lease Receivable Account
249002.81
Cost of Goods Sold
163000
To Inventory Account
163000
To Sales
249002.81
(To record the lease.)
Cash Account
35596
To Lease receivable Account
35596
(To record the first lease payment.)
12/31/2014
Interest Receivable Account
3203.64
To Interest Income Account
3203.64
(To record the accrued interest of (9% of 35596)
Date
Account Titles and Explanation
Debit
Credit
1/1/2014
Lease Receivable Account
249002.81
Cost of Goods Sold
163000
To Inventory Account
163000
To Sales
249002.81
(To record the lease.)
Cash Account
35596
To Lease receivable Account
35596
(To record the first lease payment.)
12/31/2014
Interest Receivable Account
3203.64
To Interest Income Account
3203.64
(To record the accrued interest of (9% of 35596)
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