Assume that IBM leased equipment that was carried at a cost of $178,000 to Sandh

Question

Assume that IBM leased equipment that was carried at a cost of $178,000 to Sandhill Company. The term of the lease is 7 years December 31, 2016, with equal rental payments of $36,070 beginning December 31, 2016. The fair value of the equipment at commencement of the lease is $208,001. The equipment has a useful life of 7 years with no salvage value. The lease has an implicit interest rate of 7%, no bargain purchase option, and no transfer of title. Collectibility of lease payments for IBM is probable. Prepare IBM's December 31, 2016, journal entries at commencement of the lease. (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 O decimal places e.g.5,275.) Click here to view the factor table Date Account Titles and Explanation Debit Credit December 31, 2016 Lease Recelvable 178000 Equipment 178000 Cash 36070 Lease Receivable 36070 To record the lease) December 31, 2016 nterest Recelivable 9935 3 Interest Revenue 9935 (To record receipt of lease payment) Click if you would like to Show Work for this question: Open Show Work

Explanation / Answer

Required journal entries are as prepared below:

Date Particulars L.F Amount ($) Amount ($) 2016 Dec-31 Lease Receivable 208,001 Lease asset 208,001 (For equipment given on lease) Dec-31 Cash 36,070 Lease Receivable 36,070 (for cash received for 1st Instalment)

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