Question

Carla Vista Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2020. The lease is for an 8-year period and requires equal annual payments of $30,080 at the beginning of each year. The first payment is received on January 1, 2020. Carla Vista had purchased the machine during 2016 for $116,000. Collectibility of lease payments by Carla Vista is probable. Carla Vista set the annual rental to ensure a 6% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Carla Vista at the termination of the lease.

Compute the amount of the lease receivable. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places e.g. 5,275.)

Amount of the lease receivable

$enter a dollar amount of the lease receivable rounded to 0 decimal places

Prepare all necessary journal entries for Carla Vista for 2020. (Credit account titles are automatically inented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.)

Date	Account Titles and Explanation	Debit	Credit
1/1/20	enter an account title to record the lease on January 1	enter a debit amount	enter a credit amount
	enter an account title to record the lease on January 1	enter a debit amount	enter a credit amount
	enter an account title to record the lease on January 1	enter a debit amount	enter a credit amount
	enter an account title to record the lease on January 1	enter a debit amount	enter a credit amount
	(To record the lease)
	enter an account title to record the first lease payment on January 1	enter a debit amount	enter a credit amount
	enter an account title to record the first lease payment on January 1	enter a debit amount	enter a credit amount
	(To record the first lease payment)
12/31/20	enter an account title for the journal entry on December 31	enter a debit amount	enter a credit amount
	enter an account title for the journal entry on December 31	enter a debit amount	enter a credit amount

Answer 1

(a)	Amount of the lease receivable		$197,998
		($30,080 x 6.58238)
(b)	Date	Account Titles and Explanation	Debit	Credit
	1/1/20	Lease Receivable	$197,998
		Cost of Goods Sold	$116,000
		Sales Revenue		$197,998
		Inventory		$116,000
		(To record the lease)
		Cash	$30,080
		Lease Receivable		$30,080
		(To record the first lease payment)
	12/31/20	Lease Receivable	$10,075
		Interest Revenue		$10,075
		($197,998 - $30,080) x 6%