Rexon Company leases non-specialized equipment to Ten-Care Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 8 years. The lease is noncancelable and requires equal rental payments to be made at the end of each year. 2. The cost of the equipment is $400,000. The equipment has an estimated life of 8 years and has a zero estimated value at the end of that time. 3. The equipment has a fair value of $400,000. 4. Ten-Care agrees to pay all executory costs directly to a third party. 5. The lease contains no renewal or bargain purchase option. 6. The interest rate implicit in the lease is 12%. 7. The initial direct costs are insignificant and assumed to be zero. 8. It is probable that Rexon will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. Required: 1. Next Level Assuming that the lease is a sales-type lease from Rexon’s point of view, calculate the amount of the equal rental receipts. 2. Prepare a table summarizing the lease receipts and interest income earned by Rexon. 3. Prepare journal entries for Rexon for the years 2019 and 2020. CHART OF ACCOUNTS Rexon Company General Ledger ASSETS 111 Cash 121 Accounts Receivable 122 Lease Receivable 123 Equipment Leased to Others 141 Inventory 152 Prepaid Insurance LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Interest 261 Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings REVENUE 411 Sales Revenue 433 Interest Income EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense 559 Miscellaneous Expenses 910 Income Tax Expense 1. Assuming that the lease is a sales-type lease from Rexon’s point of view, calculate the amount of the equal rental receipts. 2. Prepare a table summarizing the lease receipts and interest income earned by Rexon. Rexon Company Summary of Lease Payments Received and Interest Income Earned 1 Date Annual Lease Payment Received Interest Income at 12% on Net Investment Reduction of Lease Receivable Lease Receivable 2 January 1, 2019 3 December 31, 2019 4 December 31, 2020 5 December 31, 2021 6 December 31, 2022 7 December 31, 2023 8 December 31, 2024 9 December 31, 2025 10 December 31, 2026 3a. Prepare the journal entries for 2019. GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT 1 2 3 4 5 6 7 3b. Prepare the journal entries for 2020. GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT 1 2 3

Rexon Company leases non-specialized equipment to Ten-Care Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 8 years. The lease is noncancelable and requires equal rental payments to be made at the end of each year. 2. The cost of the equipment is $400,000. The equipment has an estimated life of 8 years and has a zero estimated value at the end of that time. 3. The equipment has a fair value of $400,000. 4. Ten-Care agrees to pay all executory costs directly to a third party. 5. The lease contains no renewal or bargain purchase option. 6. The interest rate implicit in the lease is 12%. 7. The initial direct costs are insignificant and assumed to be zero. 8. It is probable that Rexon will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. Required: 1. Next Level Assuming that the lease is a sales-type lease from Rexon’s point of view, calculate the amount of the equal rental receipts. 2. Prepare a table summarizing the lease receipts and interest income earned by Rexon. 3. Prepare journal entries for Rexon for the years 2019 and 2020. CHART OF ACCOUNTS Rexon Company General Ledger ASSETS 111 Cash 121 Accounts Receivable 122 Lease Receivable 123 Equipment Leased to Others 141 Inventory 152 Prepaid Insurance LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Interest 261 Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings REVENUE 411 Sales Revenue 433 Interest Income EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense 559 Miscellaneous Expenses 910 Income Tax Expense 1. Assuming that the lease is a sales-type lease from Rexon’s point of view, calculate the amount of the equal rental receipts. 2. Prepare a table summarizing the lease receipts and interest income earned by Rexon. Rexon Company Summary of Lease Payments Received and Interest Income Earned 1 Date Annual Lease Payment Received Interest Income at 12% on Net Investment Reduction of Lease Receivable Lease Receivable 2 January 1, 2019 3 December 31, 2019 4 December 31, 2020 5 December 31, 2021 6 December 31, 2022 7 December 31, 2023 8 December 31, 2024 9 December 31, 2025 10 December 31, 2026 3a. Prepare the journal entries for 2019. GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT 1 2 3 4 5 6 7 3b. Prepare the journal entries for 2020. GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT 1 2 3

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

Rexon Company leases non-specialized equipment to Ten-Care Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows:

1.	The lease term is 8 years. The lease is noncancelable and requires equal rental payments to be made at the end of each year.
2.	The cost of the equipment is $400,000. The equipment has an estimated life of 8 years and has a zero estimated value at the end of that time.
3.	The equipment has a fair value of $400,000.
4.	Ten-Care agrees to pay all executory costs directly to a third party.
5.	The lease contains no renewal or bargain purchase option.
6.	The interest rate implicit in the lease is 12%.
7.	The initial direct costs are insignificant and assumed to be zero.
8.	It is probable that Rexon will collect the lease payments plus any amount necessary to satisfy a residual value guarantee.

Required:

1.	Next Level Assuming that the lease is a sales-type lease from Rexon’s point of view, calculate the amount of the equal rental receipts.
2.	Prepare a table summarizing the lease receipts and interest income earned by Rexon.
3.	Prepare journal entries for Rexon for the years 2019 and 2020.

CHART OF ACCOUNTS

Rexon Company

General Ledger

	ASSETS
111	Cash
121	Accounts Receivable
122	Lease Receivable
123	Equipment Leased to Others
141	Inventory
152	Prepaid Insurance

	LIABILITIES
211	Accounts Payable
231	Salaries Payable
250	Unearned Interest
261	Income Taxes Payable

	EQUITY
311	Common Stock
331	Retained Earnings

	REVENUE
411	Sales Revenue
433	Interest Income

	EXPENSES
500	Cost of Goods Sold
511	Insurance Expense
512	Utilities Expense
521	Salaries Expense
532	Bad Debt Expense
540	Interest Expense
559	Miscellaneous Expenses
910	Income Tax Expense

1. Assuming that the lease is a sales-type lease from Rexon’s point of view, calculate the amount of the equal rental receipts.

2. Prepare a table summarizing the lease receipts and interest income earned by Rexon.

Rexon Company

Summary of Lease Payments Received and Interest Income Earned

1	Date	Annual Lease Payment Received	Interest Income at 12% on Net Investment	Reduction of Lease Receivable	Lease Receivable
2	January 1, 2019
3	December 31, 2019
4	December 31, 2020
5	December 31, 2021
6	December 31, 2022
7	December 31, 2023
8	December 31, 2024
9	December 31, 2025
10	December 31, 2026

3a. Prepare the journal entries for 2019.

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7

3b. Prepare the journal entries for 2020.

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3

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