Question

Exercise 21-7 On January 1, 2017, Stellar Company leased equipment to Pearl Corporation. The following information pertains to this lease. 1 The term of the noncancelable lease is 6 years, with no renenal option. The equipment reverts to the lessor at the termination of the lease. Equal rental payments are due on January 1 of each yeas, beginning in 2017 The fair value of the equipment on January 1, 2017, is $160,000, and ies cost is $128,000. The equipment has an economic life of 8 years, with an unguaranteed residual value of $9,000. Pearl depreciates all of its equipment on a straight-ine basis Stellar set the annual rental to ensure an 10% rate of return. Pear's incremental borrowing rate is 11%, and the mplicit rate of the lessor is unknown. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by the lessor (Both the lessor and the lessee's accounting period ends on December 31.) Calculate the amount of the annual rental payment. (Round present value factor calculations to 5 decímal places, e.g. 1.25124 and the final answer to O decimal places e.g. 58,971) Prepare all the necessary journal entries for Pearl for 2017 (Credit account titles are automatically indented when amount is entered. Do not indent manually, If no entry is required, select "Neo Entry for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to O decimal places e.g. 58,971 Prepare all the necessary journal entries for Stellar for 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually, If no entry is required, select "Neo Entry for the account tities and enter O for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to O decimal places eg. 58,971

Answer 1

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Journal entries for Stellar 2017 ( Lesser debit Date Account Credit 01/01/2017 Lease receivable S160,000 $ 122,920 Cost of goods sold $154,920 $128,000 Lease sales Inventory (to record Lease) 01/01/2017 Cash 32,337 S 32,337 Lease receivable (to record lease payment) 12/31/2017 | Interest receivable ( 160,000-32337) x 10% 12,766 12,766 Interest Payable (to record Interest)