Exercise 21-6 SHOW LIST OF ACCOUNTS LINK TO TEXT Date Account Titles and Explana
ID: 2464570 • Letter: E
Question
Exercise 21-6
SHOW LIST OF ACCOUNTS
LINK TO TEXT
Date
Account Titles and Explanation
Debit
Credit
1/1/14
(To record the lease.)
(To record the first lease payment.)
12/31/14
Exercise 21-6
Crosley Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2014. The lease is for an 8-year period and requires equal annual payments of $40,281 at the beginning of each year. The first payment is received on January 1, 2014. Crosley had purchased the machine during 2013 for $164,000. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by Crosley. Crosley set the annual rental to ensure an 8% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Crosley at the termination of the lease.
Explanation / Answer
The amount of Lease Receivable = ((PMT*((1-(1+r)^-n)/r))*(1+r)) Present Value of the lease = ((40281*((1-(1.08)^-8)/0.08))*(1.08)) ie. 249998.79236 Journal entries for Crosley Date Account Title Debit Credit 01-Jan-14 Lease Receivable 249999 Cost of Goods Sold 164000 Inventory 164000 Sales 249999 (To record the lease.) 01-Jan-14 Cash 40281 Lease Receivable 40281 (To record the first lease payment.) 31-Dec-14 Interest Receivable 3222.48 Interest Revenue 3222.48 (Int. @ 8% for 40281)
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.