Question

Sunland Company leases a building to Walsh, Inc. on January 1, 2017. The following facts pertain to the lease agreement. The lease term is 5 years, with equal annual rental payments of $4,068 at the beginning of each year. 1. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. 2. The building has a fair value of $20,200, a book value to Sunland of $13,200, and a useful life of 6 years. 3. At the end of the lease term, Sunland and Walsh expect there to be an unguaranteed residual value of $3,300. 4. Sunland wants to earn a return of 7% on the lease, and collectibility of the payments is probable. This rate is known by Walsh. 5. Click here to view the factor table.

Answer 1

Journal Entry - Sunland Company
Date	Account Tittle	Debit	Credit
Jan 1 2017	Lease Receivable	$20,200.00
	Cost of Goods Sold (BF)	$10,847.13
	Sales Revenue (4.3872X 4068)		$17,847.13
	Inventory (Book Value)		$13,200.00
	To Record Lease
Jan 1 2017	Cash	$4,068.00
	Lease Receivable		$4,068.00
	TO Record First Payment mae
Dec 31 2017	Lease Receivable (20200-4068)*7%	$1,129.24
	Interest Revenue		$1,129.24
	TO Recor Interest Revenue
Journal Entry- Walsh's
Date	Account Tittle	Debit	Credit
Jan 1 2017	Right to use assets	$17,847
	Lease Liability		$17,847
	To Record Lease
Jan 1 2017	Lease Liability	$4,068
	Cash		$4,068
	TO Record First payment made
Dec 31 2017	Interest Expense (17847-4068)*7%	$965
	Lease Liability		$965
	TO Record Interest Expense
Dec 31 2017	Depreciation Expense (17847/5)	$3,569
	Right to use asset		$3,569
	TO Record Depreciaiton
	Lease Liability		$92,000.00
	To Record Lease