Exercise 21-6 Sheffield Company, a machinery dealer, leased a machine to Dexter
ID: 2796445 • Letter: E
Question
Exercise 21-6 Sheffield 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 $38,514 at the beginning of each year. The first payment is received on January 1, 2017. Sheffield had purchased the machine during 2016 for $186,000. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by Sheffield, Sheffield set the annual rental tonsure an 11% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Sheffield at the termination of the lease. Compute the amount of the lease receivable. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.) The amount of the lease recelivabile SHOW LIST OF ACCOUNTS LINK TO TEXT Prepare all necessary journal entries for Sheffield for 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry and enter 0 for the amounts. Round answers to O decimal places e.g. 58,971.) aae. 8,97 for the account titles Date Account Titles and Explanation Debit Credit To record the lease.) To record the first lease payment) 12/31/17Explanation / Answer
Computation of amount of lease receivable:
Amount of lease receivable = Amount * Present value of 8yaers at 11%
= $38,514* 5.712 = $219,992
Journal entry:
Date
Account title
Debit
Credit
1/1/17
Lease receivable
Cost of goods sold
Inventory
Sales
219,992
186,000
186,000
219,992
1/1/17
Cash
Lease receivable
38,514
38,514
12/31/17
Interest receivable (38,514*11%)
Interest revenue
4,236.54
4,236.54
Date
Account title
Debit
Credit
1/1/17
Lease receivable
Cost of goods sold
Inventory
Sales
219,992
186,000
186,000
219,992
1/1/17
Cash
Lease receivable
38,514
38,514
12/31/17
Interest receivable (38,514*11%)
Interest revenue
4,236.54
4,236.54
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