Question

U WULUM 20 CH. Consumer B M AN Chapter 111 Syllabus for MAN Any Search FS Online Account The following facts pertain to a non-cancelable lease agreement between Splish Brothers Leasing Company and Sunland Company, a lessee May 1, 2020 Commencement date Annual lease payment due at the beginning of each year, beginning with May 1, 2020 Bargain purchase option price at end of lease term Lease term Economic life of leased equipment Lessor's cost Fair value of asset at May 1, 2020 Lessor's implicit rate Lessee's incremental borrowing rate $17,865.02 $7,000 5 years 10 years $65,000 $85,000 6 % The collectibility of the lease payments by Splish Brothers is probable. Click here to view factor tables. Your answer is correct. Compute the amount of the lease receivable at commencement of the lease. (For calculation purposes, use 5 decimal places as displayed in the factor provided and round answer to 2 decimal places, e.g. 5,275.15.) Lease receivable at commencement $ 85000 e Textbook and Media

Answer 1

Prepare journal entries as follows:

Date	Account Titles	Debit	Credit
5/1/20	Lease receivable	$85,000
	COGS	$65,000
	Sales		$85,000
	Inventory		$65,000
5/1/20	Cash	$17,865.02
	Lease receivable		$17,865.02
12/31/20	Interest receivable	$2,685.40
	Interest revenue		$2,685.40
	($4028.10 × 8/12)
5/1/21	Cash	$17,865.02
	Lease receivable		$13,863.92
	Interest receivable		$2,685.40
	Interest revenue		$1,315.70
12/31/21	Interest receivable	$2,131.92
	Interest revenue		$2,131.92
	($3197.88 × 8/12)