Question

Assume the leased equipment that was carried at a cost of $150,000 to Blossom Company. The term of the lease is 5 years December 31, 2019, with equal rental payments of $30,044 beginning December 31, 2019. Their value of the equipment at commencement of the lease is $129,554. The equipment has a useful life of 5 years with no salvage value. The lease has an implicit interest rate of B no bain purchase option, and no transfer of title Collectibility of lease payments for BIM is probable. Prepare IBM's December 31, 2019, journal entries at commencement of the lease. (Credit accounts are automatically Indented when amount is entered. Do notIndent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round find answers to decimal places a 5.275) Click here to view tact Date Account Titles and Explanation Credit December 31, 2019 (To record the lease) December 31, 2019 (To record receipt of lease payment)

Answer 1

Solution

IBM’s journal entries at commencement of the lease:

Date	Account Titles and Explanation	Debit	Credit
Dec 31, 2019	Lease Receivable	$150,000
	Equipment		$150,000
	(To record commencement of lease)
Dec 31, 2019	Cash	$30,044
	Lease Receivable		$30,044
	(To record first receipt of first lease rental)

Computations:

Present value of lease payments –

Present value factor of $1 annuity due at 8% for 5 years = 3.9927

Present value of lease rentals = 30,044 + (30,044 x 3.9927) = $150,000

The lease is capital lease as it meets all the requirements of capital lease –

1. Lease term (5 years) is more than 75% of asset’s useful life (5 years).
2. All executory costs are met by lessee.