E21.8 (LO3) (Lessor Entries, Sales-Type Lease) Crosley Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2022. The lease is for an 8-year period and requires equal annual payments of $35,004 at the beginning of each year. The first payment is received on January 1, 2022. Crosley had purchased the machine during 2021 for $160,000. Collectibility of lease payments by Crosley is probable. Crosley 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 Crosley at the termination of the lease.
E21.8 (LO3) (Lessor Entries, Sales-Type Lease) Crosley Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2022. The lease is for an 8-year period and requires equal annual payments of $35,004 at the beginning of each year. The first payment is received on January 1, 2022. Crosley had purchased the machine during 2021 for $160,000. Collectibility of lease payments by Crosley is probable. Crosley 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 Crosley at the termination of the lease.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
E21-9. Please answer E21-9.
Transcribed Image Text:E21.8 (LO 3) (Lessor Entries, Sales-Type Lease) Crosley Company, a
machinery dealer, leased a machine to Dexter Corporation on January 1, 2022.
The lease is for an 8-year period and requires equal annual payments of $35,004
at the beginning of each year. The first payment is received on January 1, 2022.
Crosley had purchased the machine during 2021 for $160,000. Collectibility of
lease payments by Crosley is probable. Crosley 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 Crosley at the termination of the lease.
Transcribed Image Text:E21.9 (LO 2, 4) (Lessee Entries, Initial Direct Costs) Use the information
for Crosley Company in E21.8. Assume that Dexter Corporation does not know the
rate implicit in the lease used by Crosley, and Dexter's incremental borrowing rate
is 8%. In addition, assume that Dexter incurs initial direct costs of $15,000.
Instructions
a. Compute the amount of the lease liability and right-of-use asset for Dexter.
b. Prepare all necessary journal entries for Dexter for 2022.
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