Flint Company leased equipment to Land Company for a ﬁve-year period. Flint paid $9,393 for the equipment, which equals its current carrying value (with estimated useful life of ﬁve years). The lease commenced on January 1 of Year 1. Flint uses a target rate of return of 8% in all lease contracts. The ﬁrst payment was received on January 1 of Year 1, and Flint’s accounting periods end on December 31.The lease contract contains a purchase option stating that Land Company can purchase the equipment for $800 on January 1 of Year 6, at which time its residual value is estimated to be $1,300. It is reasonably certain that Land Company will exercise the purchase option at the end of the lease term.a. Compute the annual payment calculated by the lessor. b. Prepare a schedule of the lease receivable for the lessor for the full lease term.• Note: Round each amount in the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule.DateJan. 1, Year 1Jan. 1, Year 1 $Jan. 1, Year 2Jan. 1, Year 3Jan. 1, Year 4Jan. 1, Year 5Jan. 1, Year 6Total$LeasePayment0 x $0 x0 x0 x0 x0 x0 $InterestRevenue0✔ $0 x0 x0 x0 x0 x0 $Reduction ofLease Receivable0 x0 x00000tA$LeaseReceivable9393✔0 x0 x0000 c. Provide journal entries for Year 1 and Year 2 for the lessor assuming that the equipment is held in the lessor's Inventory account.• Note: Round your answers to the nearest whole dollar.DateJan. 1, Year 1Jan. 1, Year 1Dec. 31, Year 1Jan. 1, Year 2Dec. 31, Year 2Account NameTo record lease receivableTo record lease paymentTo record interestTo record lease paymentTo record interestDr.000000000Cr.0x0x0x0x0x0x0x0x0x0x

The residual value of $1300 to be considered for valuation at the beginning of Year 6.

Answered: Flint Company leased equipment to Land…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Flint Company leased equipment to Land Company for a ﬁve-year period. Flint paid $9,393 for the equipment, which equals its current carrying value (with estimated useful life of ﬁve years). The lease commenced on January 1 of Year 1. Flint uses a target rate of return of 8% in all lease contracts. The ﬁrst payment was received on January 1 of Year 1, and Flint’s accounting periods end on December 31.

The lease contract contains a purchase option stating that Land Company can purchase the equipment for $800 on January 1 of Year 6, at which time its residual value is estimated to be $1,300. It is reasonably certain that Land Company will exercise the purchase option at the end of the lease term.

a. Compute the annual payment calculated by the lessor.

b. Prepare a schedule of the lease receivable for the lessor for the full lease term.
• Note: Round each amount in the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule.
Date
Jan. 1, Year 1
Jan. 1, Year 1 $
Jan. 1, Year 2
Jan. 1, Year 3
Jan. 1, Year 4
Jan. 1, Year 5
Jan. 1, Year 6
Total
$
Lease
Payment
0 x $
0 x
0 x
0 x
0 x
0 x
0 $
Interest
Revenue
0✔ $
0 x
0 x
0 x
0 x
0 x
0 $
Reduction of
Lease Receivable
0 x
0 x
0
0
0
0
0
tA
$
Lease
Receivable
9393✔
0 x
0 x
0
0
0
0

c. Provide journal entries for Year 1 and Year 2 for the lessor assuming that the equipment is held in the lessor's Inventory account.
• Note: Round your answers to the nearest whole dollar.
Date
Jan. 1, Year 1
Jan. 1, Year 1
Dec. 31, Year 1
Jan. 1, Year 2
Dec. 31, Year 2
Account Name
To record lease receivable
To record lease payment
To record interest
To record lease payment
To record interest
Dr.
0
0
0
0
0
0
0
0
0
Cr.
0x
0x
0x
0x
0x
0x
0x
0x
0x
0x

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