Assume that IBM leased equipment that was carried at a cost of $178,000 to Sandhill Company. The term of the lease is 7 years December 31, 2019, with equal rental payments of $30,868 beginning December 31, 2019. The fair value of the equipment at commencement of the lease is $178,002. The equipment has a useful life of 7 years with no salvage value. The lease has an implicit interest rate of 7%, no bargain purchase option, and no transfer of title. Collectibility of lease payments for IBM is probable. Assume the sales-type lease was recorded at a present value of $178,002.

Required:

Prepare IBM's December 31, 2017, entry to record the e ansaction with Sandhill Company.

Question

Business

Jazmine Bauer

8 May, 15:51

Assume that IBM leased equipment that was carried at a cost of $178,000 to Sandhill Company. The term of the lease is 7 years December 31, 2019, with equal rental payments of $30,868 beginning December 31, 2019. The fair value of the equipment at commencement of the lease is $178,002. The equipment has a useful life of 7 years with no salvage value. The lease has an implicit interest rate of 7%, no bargain purchase option, and no transfer of title. Collectibility of lease payments for IBM is probable. Assume the sales-type lease was recorded at a present value of $178,002.

Required:

Prepare IBM's December 31, 2017, entry to record the e ansaction with Sandhill Company.

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Answers (1)

Know the Answer?

Savanna Ellis · Answer 1

December 31, 2017

DR Cash $30,868

CR Lease Receivables $20,569

CR Interest Revenue $10,299

(To record less payment receipt)

Workings

Interest Revenue

= (Present Value - Rental Payment for year) * Interest Rate

= ($178,002 - $30,868) * 7%

= $10,299.38

= $10,299

Lease Receivables

= 30,868 - 10,299

= $20,569