In: Accounting
Manufacturers Southern leased high-tech electronic equipment
from International Machines on January 1, 2018. International
Machines manufactured the equipment at a cost of $104,000.
Manufacturers Southern's fiscal year ends December 31. (FV of $1,
PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use
appropriate factor(s) from the tables provided.)
Related Information:
Lease term2 years (8 quarterly periods)
Quarterly rental payments$18,200 at the beginning of each period
Economic life of asset2 years
Fair value of asset$135,990
Implicit interest rate8%
Required:
1. Show how International Machines determined the $18,200 quarterly
lease payments.
2. Prepare appropriate entries for International Machines to record
the lease at its beginning, January 1, 2018, and the second lease
payment on April 1, 2018.
Computation of Lease Payment |
PVF of 8% for 2 year ie. 2% for 8 period= 7.472 |
Present Value of Lease Payment=Lease PaymentX PVAF |
=$18200X 7.472= $135990 |
S. No. | Accounts Title and explanations | Debit $ | Credit $ |
01-Jan | Lease Receivable | 1,35,990.00 | |
Cost of Goods Sold | 1,04,000.00 | ||
Sales Revenue | 1,35,990.00 | ||
Inventory of Equiment | 1,04,000.00 | ||
To Record Lease at inception | |||
01-Jan | Cash | 18,200.00 | |
Lease Receivable | 18,200.00 | ||
To Record Lease Rental Received | |||
01-Apr | Cash | 18,200.00 | |
Lease Receivable (18200-2356) | 15,844.00 | ||
Interest Revenue (135990-18200)*8%/4 | 2,356.00 | ||
To Record Lease Rental Received |
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