Question

Sandhill Leasing Company signs a lease agreement on January 1, 2017, to lease electronic equipment to Teal Company. The term of the noncancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement:

1.		Teal Company has the option to purchase the equipment for $17,000 upon termination of the lease.
2.		The equipment has a cost and fair value of $176,000 to Sandhill Leasing Company. The useful economic life is 2 years, with a salvage value of $17,000.
3.		Teal Company is required to pay $4,800 each year to the lessor for executory costs.
4.		Sandhill Leasing Company desires to earn a return of 10% on its investment.
5.		Collectibility of the payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor.

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(a) Prepare the journal entries on the books of Sandhill Leasing to reflect the payments received under the lease and to recognize income for the years 2017 and 2018. (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 present value factor calculations to 5 decimal places, e.g. 0.527552 and the final answers to 0 decimal places)

Date	Account Titles	Debit	Credit
1/1/17	Lease Receivable	176,000
	Equipmet		176,000
12/31/17	Cash	??
	Executory Costs Payable		4,800
	Lease Receivable		???
	Interest Revenue		17,600
12/31/18	Cash	??
	Executory Costs Payable		4,800
	Lease Receivable		???
	Interest Revenue		???

I'm only stuck where the question marks are. Both the Cash should be the same $ amount.

Answer 1

Fair value of Equipment	176000
Less: Present value of purchase option	14050	=17000*0.82645
Present value of lease payments	161950
Present value factor	1.73554
Lease payments	93314	=161950/1.73554
a
	Debit	Credit
1/1/17     Lease Receivable	176000
Equipment		176000
12/31/17    Cash	98114		=93314+4800
Executory Costs Payable		4800
Lease Receivable		75714
Interest Revenue		17600	=176000*10%
12/31/18    Cash	98114
Executory Costs Payable		4800
Lease Receivable		83286
Interest Revenue		10028	=(176000-75714)*10%