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In: Accounting

Ivanhoe Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2020. The...

Ivanhoe 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 $30,992 at the beginning of each year. The first payment is received on January 1, 2020. Ivanhoe had purchased the machine during 2016 for $142,000. Collectibility of lease payments by Ivanhoe is probable. Ivanhoe 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 Ivanhoe at the termination of the lease.

Compute the amount of the lease receivable.

Prepare all necessary journal entries for Ivanhoe for 2020

Suppose the collectibility of the lease payments was not probable for Ivanhoe. Prepare the necessary journal entry for the company in 2020

Solutions

Expert Solution

1.

INSTALLMENT

 DATE PAYMENT IN $ VALUE FACTOR @6% VALUE
1 1.jan.2020 30992 1 30992
2 1.jan.2021 30992 0.9434 29237.85
3 1.jan.2022 30992 0.8900 27582.88
4 1.jan.2023 30992 0.8396 26020.88
5 1.jan.2024 30992 0.7921 24548.76
6 1.jan.2025 30992 0.7473 23160.32
7 1.jan.2026 30992 0.705 21849.36
8 1.jan.2017 30992 0.6651 20612.77
present value 204004.82

2.

DATE PARTICULARS DEBIT $ CREDIT $
01.01.2020 lease recievable 204004.82
cost of good sold 142000
sales revenue 204004.82
inventory 140000
(to record inception of lease)
01.01.2020 cash 30992
lease receivable 30992
(to record first payment of lease)
31.12.2020 interest receivable(204004.82-30992*4*6%) 196566.74
interest revenue 196566.74
(to record interest on the amount after first installment)

3.

DATE PARTICULARS DEBIT CREDIT
01.01.2020 cash 30992
deposit liability 30992
(to record collectibility when lease payment is not probable)

ekkarill92 answered 2 years ago
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