Skysong Leasing Company signs a lease agreement on January 1, 2020, to lease electronic equipment to Sheridan Company. This is a sales-type lease. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement:

Skysong Leasing Company signs a lease agreement on January 1, 2020, to lease electronic equipment to Sheridan Company. This is a sales-type lease. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement:

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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Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

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(The $18,000 option to purchase does not count as a bargain purchase, the expected residual value
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Computation of annual payments:
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Lease Amortization Schedule
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Skysong Leasing Company signs a lease agreement on January 1, 2020, to lease electronic
equipment to Sheridan Company. This is a sales-type lease. The term of the non-cancelable lease is
2 years, and payments are required at the end of each year. The following information relates to
this agreement:
1. Sheridan has the option to purchase the equipment for $18,000 upon termination of the lease. It
is not reasonably certain that Sheridan will exercise this option.
2. The equipment has a cost of $160,000 and fair value of $189,000 to Skysong Leasing. The useful
economic life is 2 years, with a residual value of $18,000.
3. Skysong Leasing desires to earn a return of 5% on its investment.
4. Collectibility of the payments by Skysong Leasing is probable.
Prepare the journal entries on the books of Skysong Leasing to reflect the payments received under
the lease and to recognize income for the years 2020 and 2021. Round to the nearest dollar.
(The $18,000 option to purchase does not count as a bargain purchase, the expected residual value
at the end of the lease term is also $18,000.)

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