Question

Manufacturers Southern leased high-tech electronic equipment from International Machines on January 1, 2021. International Machines manufactured the equipment at a cost of $105,000. Manufacturers Southern's fiscal year ends December 31. (FV of $1. PV of $1. EVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Related Information! Lease term Quarterly rental payments Economic life of asset Fair value of asset Implicit interest rate 2 years (8 quarterly periods) $17,000 at the beginning of each period 2 years $127,024 88 Required: 1. Show how International Machines determined the $17,000 quarterly lease payments. 2. Prepare appropriate entries for International Machines to record the lease at its beginning, January 1, 2021, and the second lease payment on April 1, 2021. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Show how International Machines determined the $17,000 quarterly lease payments. (Round your intermediate and final answers to the nearest whole dollar. Round your percentage answer to 1 decimal place.) PV factors based on Table or Calculator function:

Answer 1

Answer:

1.Determination of the $ 17,000 quarterly rental payments:

Use the present value factor 7.47199 (Present Value of annuity of $ 1 for 2 years 4 quarterly periods in one year at 8% rate) 2% for every quarter period.

Present Value of Lease Payments = Lease Payment * PV Factor Value

$ 127,024 = $ 17,000 * 7.47199

Or, 17,000 = $ 127,024 / 7.47199

2. Journalize the lease transactions on January 1,2021 in the books of lessor, International Machines

Date	Account Title & Explanation	Post Ref.	Debit ($)	Credit ($)
jan 1,2021	Lease Receivable		127,024
	Cost of Goods Sold		105,000
	Sales Revenue			127,024
	Inventory Equipment			105,000
	(To record lease inception)

Receipt of Lease Payment:

Date	Account Title & Explanation	Post Ref.	Debit ($)	Credit ($)
jan 1,2021	Cash		17,000
	Lease Receivable			17,000
	(To record the rental received)

Receipt of Second Lease Payment:

Date	Account Title & Explanation	Post Ref.	Debit ($)	Credit ($)
April 1,2021	Cash		17,000
	Lease Receivable (17,000 - 2,200)			14,800
	Interest Revenue (127,024 - 17,000)* 8% * 1/4			2,200
	(To record the rental received)