Question

Skysong Corporation manufactures replicators. On January 1, 2017, it leased to Althaus Company a replicator that had cost $115,000 to manufacture. The lease agreement covers the 5-year useful life of the replicator and requires 5 equal annual rentals of $41,200 payable each January 1, beginning January 1, 2017. An interest rate of 10% is implicit in the lease agreement. Collectibility of the rentals is reasonably assured, and there are no important uncertainties concerning costs. Prepare Skysong's January 1, 2017, journal entries. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to o decimal places e.g. 58,971.) Click here to view factor tables Account Titles and Explanation Debit Credit Date January 1, 2017 (To record the lease.) January 1, 2017 (To record cost.) January 1, 2017 (To record first lease payment.)

Answer 1

Credit Date Jan. 1, 2017 Debit $171,799 $171,799 $115,000 Jan. 1, $2,017 Account Titles and Explanation Lease Receivable Sales Revenue (To record the lease) Cost of Goods Sold Inventory (To record the cost) Cash Lease Receivable (To record first lease payment) $115,000 $41,200 Jan. 1, $2,017 $41,200 Workings: 10% Implicit interest rate, RATE # of years of lease, NPER Lease payment factor, PMT Lease payment at the end, FV Annual payment type, TYPE Present value factor Annual lease payment, PMT Present value of future payments 1 = 0 if paid at the end of each period; 1 if paid at the beginning of each period. 4.16987 (Ref: NOTE] $41,200 $171,799 [4.16987 X $41200]

NOTE: Present value factor is calculated using EXCEL FUNCTION PV(rate,nper,pmt,fv,type) where rate=10%; nper=5; pmt=-1; fv=-0; type = 1. Here, value for pmt is negative as it denotes cash inflows; type = 1 because lease payments are paid at the beginning of each year. B C D E F G H I J 10% 5 Α 1 Implicit interest rate, RATE 2 # of years of lease, NPER 3 Lease payment factor, PMT 4 Lease payment at the end, FV 5 Annual payment type, TYPE 6 Present value factor 7 Annual lease payment, PMT 8 Present value of future payments 9 1 = 0 if paid at the end of each period; 1 if paid at the beginning of each period. =ROUND(PV(B1,B2,-B3,B4,B5),5) (Ref: NOTE] $41,200 =B6*B7 (4.16987 x $41200)