Question

Blossom Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2020. The lease is for an 8-year period and requires equal annual payments of $32,207 at the beginning of each year. The first payment is received on January 1, 2020. Blossom had purchased the machine during 2016 for $146,000. Collectibility of lease payments by Blossom is probable. Blossom set the annual rental to ensure a 6% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Blossom at the termination of the lease.

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Compute the amount of the lease receivable. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places e.g. 5,275.)

Amount of the lease receivable

Prepare all necessary journal entries for Blossom for 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.) Date Account Titles and Explanation Debit Credit 1/1/20 enter an account title to record the lease on January 1 enter a debit amount enter a credit amount enter an account title to record the lease on January 1 enter a debit amount enter a credit amount enter an account title to record the lease on January 1 enter a debit amount enter a credit amount enter an account title to record the lease on January 1 enter a debit amount enter a credit amount (To record the lease) enter an account title to record the first lease payment on January 1 enter a debit amount enter a credit amount enter an account title to record the first lease payment on January 1 enter a debit amount enter a credit amount (To record the first lease payment) 12/31/20 enter an account title for the journal entry on December 31 enter a debit amount enter a credit amount enter an account title for the journal entry on December 31 enter a debit amount enter a credit amount Suppose the collectibility of the lease payments was not probable for Blossom. Prepare the necessary journal entry for the company in 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit 1/1/20 enter an account title for the journal entry on January 1 enter a debit amount enter a credit amount enter an account title for the journal entry on January 1 enter a debit amount enter a credit amount eTextbook and Media List of Accounts Suppose at the end of the lease term, Blossom receives the asset and determines that it actually has a fair value of $1,470 instead of the anticipated residual value of $0. Record the entry to recognize the receipt of the asset for Blossom at the end of the lease term. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.) Date Account Titles and Explanation Debit Credit 1/1/20 enter an account title for the journal entry on January 1 enter a debit amount enter a credit amount enter an account title for the journal entry on January 1 enter a debit amount enter a credit amount

Answer 1

Answer :-

Computation of the amount of the lease receivable are as follows :-

Amount of the lease receivable = $211,999

Journal entries for Blossom for 2020 are as follows :-

Date	Account Titles and Explanation	Debit	Credit
1/1/20	Lease receivable A/c Dr.	$211,999
	Cost of goods sold A/c Dr.	$146,000
	To Sales A/c		$211,999
	To Inventory A/c		$146,000
	(To record the lease)
	Cash A/c Dr.	$32,207
	To Lease receivable A/c		$32,207
	(To record the first lease payment)
12/31/20	Interest receivable A/c Dr.	$10787.52
	To Interest revenue A/c [($211,999 - $32,207) × 6% rate]		$10,787.52
	(To record interest receivable on the amount after first annual payments)
1/1/2020	Cash A/c Dr.	$32,207
	To Deposit Liability A/c		$32,207
	( To record the collectibility of the lease payments was not probable for Blossom)
1/1/2020	Inventory A/c Dr.	$1,470
	To Gain on Lease A/c		$1,470