Exercise 21A-6 a-b (Part Level Submission) Kingbird Leasing Company signs a leas
ID: 2511624 • Letter: E
Question
Exercise 21A-6 a-b (Part Level Submission) 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: 1. 2. 3. 4. 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 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. Kingbird Leasing desires to earn a return of 5% on its investment. Collectibility of the payments by Kingbird Leasing is probable. Click here to view the factor table. Your answer is partially correct. Try again 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. (Credit account titles are automatically indented when amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,275.)Explanation / Answer
Date Account Title Debit credit Jan.1,2017 Lease Receivable 376000 Asset 376000 (Fair value of the asset leases) Dec.1,2017 Cash 202215 Interest Revenue 18800 Lease Receivable 183415 (1st instalment of lease payment) Dec.1,2018 Cash 202215 Interest Revenue 9630 Lease Receivable 192585 (2nd instalment of lease payment) Formula for calculating annuity payments P= PV(r) / (1-(1+r)^-n) Where P = Annuity (or lease payment) PV = fair value = $376,000 r = 5% and n= 2 years
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