1. Cullumber has the option to purchase the equipment for $27,000 upon terminati
ID: 2340952 • Letter: 1
Question
1. Cullumber has the option to purchase the equipment for $27,000 upon termination of the lease. It is not reasonably certain that Cullumber will exercise this option. 2. The equipment has a cost of $340,000 and fair value of $396,500 to Marin Leasing. The useful economic life is 2 years, with a residual value of 27,000. 3. Marin Leasing desires to earn a return of 5% on its investment. 4. Collectibility of the payments by Marin Leasing is probable.Prepare the journal entries on the books of Marin Leasing to reflect the payments received under the lease and to recognize income for the years 2017 and 2018. ** See photo for journal entry setup and factor table. Assignment Gradebook ORION Downloadable eTextbook ice ment (a) Prepare the journal entries on the books of Marin Leasing to reflect the payments received under t For calculation purposes, use 5 decimal places as displayed in the factor table provided a Date Account Titles and Explanation Debit Credit Click if you would like to Show Work for this question: Modify Show Work
Explanation / Answer
Calculation of annual lease payment :
=$340000-[27000*1/(1.05)2]
=$340000-[27000*1/1.1025]
=$340000-[27000*.907]
=$340000-$24489
=$315511
Annual Lease Payment =$315511/[{1-(1.05)-2}/0.05]
=$315511 /[(1-.907)/0.05]
=$315511/(.093/.05)
=$315511/1.86
=$169630
Journal Entries
Yr General Journal Dr Amount Cr Amount
2017 Cash A/C $169630
To Lease Receivable(169630-27000) $142630
To Interest Revenue (169630-142630) $27000
2018 Cash A/C $169630
To Lease Receivable (169630-740) $168890
To Interest Revenue(340000-169630*2) $740
Note :- Leased asset will not be recognized at the fair value of $ 396500 in the books of accounts Marine Leasing because the total present value of minimum lease payment $ 339260 (169630 * 2) is less than the fair value of lease asset amounting to $ 396500 given in the question.
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