Kingbird Leasing Company signs a lease agreement on January 1, 2017, to lease el
ID: 2511583 • Letter: K
Question
Kingbird Leasing Company signs a lease agreement on January 1, 2017, to lease electronic equipment to Blossom Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement:
Collectibility of the payments by Kingbird Leasing is probable.
Prepare the journal entries on the books of Kingbird Leasing to reflect the payments received under the lease and to recognize income for the years 2017 and 2018.
1. Blossom has the option to purchase the equipment for $26,000 upon termination of the lease. It is not reasonably certain that Blossom will exercise this option. 2. The equipment has a cost of $320,000 and fair value of $376,000 to Kingbird Leasing. The useful economic life is 2 years, with a residual value of $26,000. 3. Kingbird Leasing desires to earn a return of 5% on its investment.Collectibility of the payments by Kingbird Leasing is probable.
Prepare the journal entries on the books of Kingbird Leasing to reflect the payments received under the lease and to recognize income for the years 2017 and 2018.
Date Account Titles and Explanation Debit Credit Lease Receivable Cost of Goods Sold Inventory Sales Revenue 12/31/17 Cash Interest Revenue Lease Receivable 12/31/18Cash Interest Revenue Lease Receivable ike to ShowExplanation / Answer
Preparation of Journal Entries in the books of Kingbird Leasing
Date Particulars Debit Credit 1/7/2017 Lease Receivable .......Dr 320,000 Cost of Goods Sold 26,000 Inventory (Balancing Figure) 30,000 To Sales Revenue 376,000 (Being Equipment given on Lease) 12/31/2017 Cash A/c ...........................Dr 176,000 To Interest .......(320,000*5%) 16,000 To Lease Receivable (360,000/2years= Principal) 160,000 (Being interest received on lease of 1st year) 12/31/2018 Cash A/c..............................Dr 168,800 To Interest ...........(160,000+16,000=176,000*5%) 8,800 To Lease Receivables (320,000-160,000) 160,000 (Being, Interest received on 2nd year) 12/31/2018 Depriciation A/c ..........................Dr 147,000 To equipment A/c 147,000 (Being Depriciation provided for 2 years can claim by lessor, King bird, = 320,000-26,000/2=147,000 each year)Related Questions
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