The lease agreement and related facts indicate the following: A. Leased equipmen

Question

The lease agreement and related facts indicate the following:

A. Leased equipment had a retail cash selling price of $300,000. Its useful life was five years with no residual value.

B. The lease term is five years and the lessor paid $265,000 to acquire the equipment (thus, selling profit).

C. Lessor's implicit interest rate when calculating the lease payments was 8%.

D. Annual lease payments beginning January 1, 2018, the beginning of the lease, were $69,571.

E. Incremental costs of commissions for brokering the lease and consummating the completed lease transaction incurred by the lessor were $7,500.

Required:

Prepare the appropriate journal entries for the lessor to record:

1. Prepare lease and the initial payment at its commencement.

2. Any entry(s) necessary at December 31, 2018, the fiscal year-end.

Explanation / Answer

Date Account Debit credit 1 jan 2018 Lease receivable 300000 sales revenue 300000 [sales made] cost of goods sold 265000 Equipment inventory 265000 [Cost of sales recorded] 1jan Lease receivable 7500 cash 7500 [cost incurred] 1 jan 2018 cash 69571 Lease receivable 69571 [First lease payment received] 31 dec 2018 Interest receivable 18434.32 Interest revenue [ 18434.32 [Interest accrued on carrying value [300000-69571= 230429*.08

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