Exercise 21-6 Crosley Company, a machinery dealer, leased a machine to Dexter Co
ID: 2761468 • Letter: E
Question
Exercise 21-6
Crosley Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2014. The lease is for an 10-year period and requires equal annual payments of $42,462 at the beginning of each year. The first payment is received on January 1, 2014. Crosley had purchased the machine during 2013 for $160,000. 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 10% 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.
1. Compute the amount of the lease receivable. (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.)
2. Prepare all necessary journal entries for Crosley for 2014. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 58,971.)
Explanation / Answer
Crosley Company Year Cash Flows PV@10% Dicouted Cash Flow 0 160000 1 -160000 1 42462 0.90909 38601.81818 2 42462 0.82645 35092.56198 3 42462 0.75131 31902.32908 4 42462 0.68301 29002.11734 5 42462 0.62092 26365.56122 6 42462 0.56447 23968.69202 7 42462 0.51316 21789.72002 8 42462 0.46651 19808.83638 9 42462 0.42410 18008.03307 10 42462 0.38554 16370.93916 Net Present Value 100911 Journal Partculars Dr. Amount Cr.Amount 01/01/2014 Bank A/c 38601 To Rental Inocme 38601 31/12/2014 Depreciation A/c 16000 To Accumulated Depreciation 16000
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