Exercise 21-6 Cheyenne Company, a machinery dealer, leased a machine to Dexter C
ID: 2528485 • Letter: E
Question
Exercise 21-6
Cheyenne Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2017. The lease is for an 8-year period and requires equal annual payments of $31,865 at the beginning of each year. The first payment is received on January 1, 2017. Cheyenne had purchased the machine during 2016 for $142,000. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by Cheyenne. Cheyenne set the annual rental to ensure an 10% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Cheyenne at the termination of the lease.
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SHOW LIST OF ACCOUNTS
LINK TO TEXT
Date
Account Titles and Explanation
Debit
Credit
1/1/17
(To record the lease.)
(To record the first lease payment.)
12/31/17
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Exercise 21-6
Cheyenne Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2017. The lease is for an 8-year period and requires equal annual payments of $31,865 at the beginning of each year. The first payment is received on January 1, 2017. Cheyenne had purchased the machine during 2016 for $142,000. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by Cheyenne. Cheyenne set the annual rental to ensure an 10% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Cheyenne at the termination of the lease.
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Explanation / Answer
a)Compute the amount of the lease receivable.
The amount of the lease receivable = $31,865x 5.86842= $186,997
b)Prepare all necessary journal entries for Crosley for 2017.
1/1/17 Lease Receivable..........................................186,997
Cost of Goods Sold........................................142,000
Sales Revenue......................................................186,997
Inventory................................................................142,000
1/1/17 Cash...............................................................31,865
Lease Receivable..................................................31,865
12/13/17 Interest Receivable.......................................15,513
Interest Revenue........................................15,513
Interest Revenue = [($186,997 – $31,865) x 0.10] = $15,513
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