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 $208,000. 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. Assume the sales-type lease was recorded at a present value of $208,000 Prepare IBM's December 31, 2017, entry to record the e ansaction with Sandhill Company. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.) Account Titles and Explanation Debit Credit Click if you would like to Show Work for this question: Open Show Work

Explanation / Answer

SOLUTION

S.No. Account titles and Explanation Debit ($) Credit ($) 1. Lease Receivable 178,000   Equipment 178,000 (To record the lease) 2. Cash 36,070 Lease Receivable 36,070 (To record the first lease payment)

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