Question

Brief Exercise 21A-12

Sage Hill Corporation manufactures drones. On December 31, 2016, it leased to Althaus Company a drone that had cost $105,300 to manufacture. The lease agreement covers the 5-year useful life of the drone and requires 5 equal annual rentals of $43,200 payable each December 31, beginning December 31, 2016. An interest rate of 11% is implicit in the lease agreement. Collectibility of the rentals is probable.

Prepare Sage Hill’s December 31, 2016, journal entries. (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 0 decimal places e.g. 5,275.)

Click here to view the factor table.

Date	Account Titles and Explanation	Debit	Credit
December 31, 2016	enter an account title To record the lease	enter a debit amount	enter a credit amount
	enter an account title To record the lease	enter a debit amount	enter a credit amount
	enter an account title To record the lease	enter a debit amount	enter a credit amount
	enter an account title To record the lease	enter a debit amount	enter a credit amount
	(To record the lease)
December 31, 2016	enter an account title To record receipt of lease payment	enter a debit amount	enter a credit amount
	enter an account title To record receipt of lease payment	enter a debit amount	enter a credit amount
	(To record receipt of lease payment)

Answer 1

Date	Account Titles and Explanation	Debit	Credit
December 31, 2016	Lease Receivable	$177,226
	Cost of goods sold	$105,300
	Sales Revenue		$177,226
	Inventory		$105,300
	(To record the lease)
December 31, 2016	Cash	$43,200
	Lease Receivable		$43,200
	(To record receipt of lease payment)

Present Value of Annuity due of $1 for 5 period 11% is 4.1024

Present value =$43,200 * 4.10245 = $ 177,226