Recording Sales-Type Lease Journal Entries- Residual ValueSmith, the lessee, signs an eight-year lease agreement on December 31 for the floor of a building that requires annual payments of $210,000, beginning immediately. The residual value of$150,000 is guaranteed to the lessor at the end of the lease term. Smith estimates a residual value of $90,000 at the end of the lease term. Smith is aware of the lessor's implicit rate ofinterest of 7%.Prepare the lessor's journal entries on December 31 to record the (1) lease receivable and (2) receipt of the first payment, assuming that the lease is properly classified as a sales-type lease.The carrying value of the equipment is $1,350,000 at the commencement of the lease.• Note: Round your answers to the nearest whole dollar.Date1) Dec. 31Account NameRight-of-Use AssetCost of Goods SoldLease LiabilityInventory2) Dec 31 CashDr.210,000V 1,350,000To derecognize asset and record investment in leaseLease ReceivableTo record receipt of lease payment>VOO00210,0000Cr.0x0 ✓210,000 X1.350,000✔0V210,000 Recording Sales - Type Lease Journal Entries - Residual Value Smith, the lessee, signs an eight- year lease agreement on December 31 for the floor of a building that requires annual payments of $210,000, beginningimmediately. The residual value of $150,000 is guaranteed to the lessor at the end of the lease term. Smith estimates a residual value of $90,000 at the end of the lease term. Smith is aware of the lessor's implicit rate of interestof 7%. Prepare the lessor's journali entries on December 31 to record the (1) lease receivable and (2) receipt of the first payment, assuming that the lease is properly classified as a sales - type lease. The carrying value of theequipment is $1,350,000 at the commencement of the lease. Note: Round your answers to the nearest whole dollar. \table[[Date, Account Name,,Dr., Cr.], [1) Dec. 31, Right - of - Use Asset, ✓,210,000, 0,5x

To document investment in the lease and derecognize assets:Lease Receivable: The annual payments'…

Recording Sales-Type Lease Journal Entries-Residual Value Smith, the lessee, signs an eight-year lease agreement on December 31 for the floor of a building that requires annual payments of $210,000, beginning immediately. The residual value of $150,000 is guaranteed to the lessor at the end of the lease term. Smith estimates a residual value of $90,000 at the end of the lease term. Smith is aware of the lessor's implicit rate of interest of 7%. Prepare the lessor's journal entries on December 31 to record the (1) lease receivable and (2) receipt of the first payment, assuming that the lease is properly classified as a sales-type lease. The carrying value of the equipment is $1,350,000 at the commencement of the lease. • Note: Round your answers to the nearest whole dollar. Date 1) Dec. 31 Account Name Right-of-Use Asset Cost of Goods Sold Lease Liability Inventory 2) Dec. 31 Cash V Lease Receivable To record receipt of lease payment V v To derecognize asset and record investment in lease V Dr. 210,000 1,350,000 0 0 210,000 0 Cr. 0x 0✔ 210,000 x 1.350,000✔ 0✓ 210,000 ✓

Recording Sales-Type Lease Journal Entries-Residual Value Smith, the lessee, signs an eight-year lease agreement on December 31 for the floor of a building that requires annual payments of $210,000, beginning immediately. The residual value of $150,000 is guaranteed to the lessor at the end of the lease term. Smith estimates a residual value of $90,000 at the end of the lease term. Smith is aware of the lessor's implicit rate of interest of 7%. Prepare the lessor's journal entries on December 31 to record the (1) lease receivable and (2) receipt of the first payment, assuming that the lease is properly classified as a sales-type lease. The carrying value of the equipment is $1,350,000 at the commencement of the lease. • Note: Round your answers to the nearest whole dollar. Date 1) Dec. 31 Account Name Right-of-Use Asset Cost of Goods Sold Lease Liability Inventory 2) Dec. 31 Cash V Lease Receivable To record receipt of lease payment V v To derecognize asset and record investment in lease V Dr. 210,000 1,350,000 0 0 210,000 0 Cr. 0x 0✔ 210,000 x 1.350,000✔ 0✓ 210,000 ✓

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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Under leases
WHAT IS THE INCREASE IN LEASE LIABILITY?
A finance lease agreement calls for quarterly lease payments of $5,376 over a 10-year lease term, with the first payment on July 1, the beginning of the lease. The annual interest rate is 8%. Both the present value of the lease payments and the cost of the asset to the lessor are $150,000. Required: Prepare a partial amortization table up to the October 1 payment. What would be the amount of interest expense (revenue) the lessee (lessor) would record in conjunction with the second quarterly payment on October 1?