Exercise 21-4 Crane Leasing Company signs a lease agreement on January 1, 2017,
ID: 2528484 • Letter: E
Question
Exercise 21-4
Crane Leasing Company signs a lease agreement on January 1, 2017, to lease electronic equipment to Cheyenne 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:
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(a) Prepare the journal entries on the books of Crane 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. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 0.527552 and the final answers to 0 decimal places e.g. 5,275.)
Date
Account Titles and Explanation
Debit
Credit
(b) Assuming that Cheyenne Company exercises its option to purchase the equipment on December 31, 2018, prepare the journal entry to reflect the sale on Crane’s books. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 0.527552 and the final answers to 0 decimal places e.g. 5,275.)
Date
Account Titles and Explanation
Debit
Credit
12/31/18
Open Show Work
1. Cheyenne Company has the option to purchase the equipment for $17,600 upon termination of the lease. 2. The equipment has a cost and fair value of $153,000 to Crane Leasing Company. The useful economic life is 2 years, with a salvage value of $17,600. 3. Cheyenne Company is required to pay $5,100 each year to the lessor for executory costs. 4. Crane Leasing Company desires to earn a return of 10% 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.Explanation / Answer
Fair Value of Equipment 153000 Less:Present Value of Salvage Value 14545 (17600*0.826446 PVF 10%, 2 Year Subtotal 138455 PVAF 10% 2 Years 1.735537 Present Value of Minimum Lease Payament 79776 167545/1.735537 Lessor Journal Entries: Date Account Debit Credit 01 Jan 2017 Lease Receivable 153000 Equipment 153000 31 Dec 2017 Cash 84876 Executory Cost 5100 Lease Receivable 79776-15300 64476 Interest Receivable 153000*10% 15300 31 Dec 2018 Cash 84876 Executory Cost 5100 Lease Receivable 79776-7176 72600 Interest Receivable (153000-81238)*10% 7176 b. 31 Dec 2018 Cash 17600 Lease Receivable 17600
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