Question

Marin Leasing Company signs a lease agreement on January 1, 2017, to lease electronic equipment to Cullumber 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. Cullumber has the option to purchase the equipment for $27,000 upon termination of the lease. It is not reasonably certain that Cullumber will exercise this option. 2. The equipment has a cost of $340,000 and fair value of $396,500 to Marin Leasing. The useful economic life is 2 years, with an unguaranteed residual value of $27,000. 3. Marin Leasing desires to earn a return of 5% on its investment. 4. Collectibility of the payments by Marin Leasing is probable. Click here to view the factor table.

(a) Prepare the journal entries on the books of Marin Leasing to reflect the payments received under the lease and to recognize income for the years 2017 and 2018. (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.) Date Account Titles and Explanation Debit Credit 1/1/17 1/1/1712/31/1712/31/18 1/1/1712/31/1712/31/18 Click if you would like to Show Work for this question: Open Show Work SHOW LIST OF ACCOUNTS

Answer 1

Journal Entry- Marin leasing Company
Date	Accounts Titles & Explanation	Debit	Credit
1/1/2017	Lease Receivable	$396,500
	Equipment		$396,500
12/31/2017	Cash	$200,069
	Lease Receivable		$180,244
	Interest Revenue (396500*5%)		$19,825
12/31/2018	Cash	$200,069
	Lease Receivable (BF)		$189,256
	Interest Revenue (396500-180244)*5%		$10,813
12/31/2018	Cash	$27,000
	Lease Receivable		$27,000

Computation of Annual Lease Rental Payment
Fair value of leased assets	$396,500
Less: present value of salvage value (27000X 0.90703)	$24,490
Amount to be recovered	$372,010