Brief Exercise 21-6 Assume that IBM leased equipment that was carried at a cost

Question

Brief Exercise 21-6 Assume that IBM leased equipment that was carried at a cost of $150,000 to Sharon Swander Company. The term of the lease is 6 years beginning January 1, 2014, with equal rental payments of $30,044 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 $150,000. The equipment has a useful life of 6 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 1 Prepare IBM's January 1, 2014, journal entries at the inception of the lease. (Credit account titles are automatically indented when amount is entered. Do not indent manually. 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.) 36482836678 96333 7 5668 anuary 1, 2014 To recond the lease anuary 1, 2014 To recond first lease payment) Click if you would like to Show Work for this question: Open Show Work

Explanation / Answer

January 1:

Lease receivable account debit $150,000

To Equipment $150,000

January 1:

Cash account debit $30,044

To lease receivable $30,044

(First payment of lease received)

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