Assume that IBM leased equipment that was carried at a cost of $113,000 to Sharo

Question

Assume that IBM leased equipment that was carried at a cost of $113,000 to Sharon Swander Company. The term of the lease is 5 years beginning January 201·with equal rental payments of $26,205 at the beginning of each year. All executory costs are paid by Swander directly to third parties. The fair value of the equipment at the inception of the lease is $113,000. The equipment has a useful life of 5 years with no salvage value. The lease has an implicit interest rate of 8%, no bargain-purchase option, and no transfer of title. Collectibility is reasonably assured with no additional cost to be incurred by IBM. Prepare IBM's January 1, 2017, journal entries at the inception of the lease. (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 O for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to O decimal places e.g. 58,971.) Date Account Titles and Explanation Debit Credit January 1, 2017 To record the lease.) January 1, 2017 To record first lease payment.)

Explanation / Answer

Journal entry :

date account titles and explanation debit credit Jan 1,2017 Lease Receivable a/c 113000      Equipment 113000 (TO record the lease) Jan 1,2017 Cash a/c 26205      Lease receivable a/c 26205 (To record first lease payment)

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