Exercise 21-4 Your answer is partially correct. Try again. Castle Leasing Compan
ID: 2579807 • Letter: E
Question
Exercise 21-4 Your answer is partially correct. Try again. Castle Leasing Company signs a lease agreement on January 1, 2014, to lease electronic equipment to Jan Way Company. The term of the noncancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement: 1. Jan Way has the option to purchase the equipment for $15,750 upon termination of the lease. 2. The equipment has a cost and fair value of $175,600 to Castle Leasing Company. The useful economic life is 2 years, with a salvage value of $15,750 3. Jan Way Company is required to pay $4,780 each year to the lessor for executory costs. 4, Castle Leasing Company desires to earn a return of 9% on its investment. . Collectibility of the payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor.Explanation / Answer
Journal Entries
Debit Credit
1/1/14 Lease Receivable 175600
Equipment 175600
12/31/14 Cash 97067
Executory Cost Payable 4780
Lease Receivable 76483
Interest Revenue 15804
12/31/15 Cash 97067
Executory Cost Payable 4780
Lease Receivable 83367
Interest Revenue 8920
12/31/15 Cash 15750
Lease Receivable 15750
(assumed that the asset is either taken by Jan Way Company or it is sold in the open market at the fair value at the end of lease period)
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