Ramallah Company leases heavy equipment to Terrell Inc. on January 2, 2016, on t
ID: 2572699 • Letter: R
Question
Ramallah Company leases heavy equipment to Terrell Inc. on January 2, 2016, on the following terms:
Required:
1. Forty-eight lease rentals of $1,600 at the end of each month are to be paid by Terrell, and the lease is noncancelable. 2. The cost of the heavy equipment to Ramallah was $60,758. 3. Ramallah will account for this lease using the direct financing method. The difference between total rental receipts ($1,600 x 48 = $76,800) and the cost of the equipment ($60,758) was computed to yield a return of 1% per month over the lease term.Explanation / Answer
No. Account particulars Debit Credit Jan 2 Lease receivables 76,800 Unearned interest revenue 16042 Heavy equipment 60,758 Jan 31 Cash 1600 Lease Receivable 1600 Jan 31 Unearned Interest Revenue 608 Interest revenue 608 (Interest revenue = 1%*60758)
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