Oriole Company, a machinery dealer, leased a machine to Dexter Corporation on Ja

Question

Oriole 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 $31,144 at the beginning of each year. The first payment is received on January 1, 2017. Oriole had purchased the machine during 2016 for$123,000. Collectibility of lease payments by Oriole is probable. Oriole set the annual rental to ensure a 6% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Oriole at the termination of the lease. ? (a) ?Your answer is correct. Compute the amount of the lease receivable. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places e.g. 5,275.) Amount of the lease 205002 receivable

Explanation / Answer

a) Lease Receivable = Annual lease Payments*PVAF(8, 6%) (at the beginning of period)

= $31,144*6.58238 = $205,002

b) Journal Entries (Amounts in $)

Date Account Titles and Explanation Debit Credit 1/1/17 Lease Receivable 205,002 Cost of goods sold 123,000 Sales Revenue 205,002 Inventory 123,000 (To record the lease) 1/1/17 Cash 31,144 Lease Receivable 31,144 (To record the first lease payment) 12/31/17 Interest Receivable [($205,002-$31,144)*6%] 10,431 Interest Revenue 10,431 (To record the interest revenue)

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