Question

Novak Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2017. The lease is for an 8-year period and requires equal annual payments of $33,610 at the beginning of each year. The first payment is received on January 1, 2017. Novak had purchased the machine during 2016 for $146,000. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by Novak. Novak set the annual rental to ensure an 12% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Novak at the termination of the lease. Click here to view factor tables Compute the amount of the lease receivable. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.) The amount of the lease receivable LINK TO TEXT VIDEO: SIMILAR EXERCISE Prepare all necessary journal entries for Novak for 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places e.g. 58,971.)

Answer 1

1. The amount of the lease receivable = 33610 * PVAD of $1 ( 12%, 10 years)

= 33610* 6.32825

= 212,692

2.

Date	Account Titles and Explanation	Debit	Credit
1/1/17	Lease receivable	212692
	Cost of goods sold	146,000
	Sales revenue		212692
	Inventory		146,000
	Cash	33610
	Lease receivable		33610
12/31/17	Interest receivable	21490
	Interest revenue		21490
	[212692-33610]* 12%