Question

Kingbird Leasing Company signs a lease agreement on January 1, 2020, to lease electronic equipment to Blossom Company. The term of the non- cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement: 1. Blossom has the option to purchase the equipment for $15,000 upon termination of the lease. It is not reasonably certain that Blossom will exercise this option. 2. The equipment has a cost of $100,000 and fair value of $120,000 to Kingbird Leasing. The useful economic life is 2 years, witha residual value of $15,000. 3. Kingbird Leasing desires to earn a return of 5 % on its investment. 4. Collectibility of the payments by Kingbird Leasing is probable. rt Click here to view factor tables Prepare the journal entries on the books of Kingbird Leasing to reflect the payments received under the lease and to recognize income for the years 2020 and 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to O decimal places eg. 5,275) I Credit Debit Account Titles and Explanation Date 120,000 Lease Receivable 1/1/20 Cost of Goods Sold Sales Revenue 100,000

Answer 1

1.

Date	Account Titles	Debit	Credit
1/1/20	Lease receivable	120,000
	Cost of goods sold [100,000-13605]	86,395
	Sales revenue		106,395
	Inventory		100,000
12/31/20	Cash	57220
	Lease receivable		51220
	Interest revenue [120,000*5%]		6000
12/31/21	Cash	57220
	Lease receivable		53781
	Interest revenue [120,000 - 51220]*5%		3439

2.

Date	Account Titles	Debit	Credit
12/31/21	Cash	15000
	Lease receivable		15000

Workings:

Present value of fair value	120,000
Less: Present value [15000 * 0.90703]	13605
Present value of lease payments	106,395
Lease payment [106,395/1.85941]	57220