Sunland Company specializes in leasing large storage units to other businesses. Sunland entered a contract to lease a storage unit to Riskey, Inc. for 4 years when that particular storage unit had a remaining useful life of 5 years. The fair value of the unit was $13,000 at the commencement of the lease on January 1, 2020. The present value of the five equal rental payments of $3,481 at the start of each year, plus the present value of a guaranteed residual value of $1,000, equals the fair value of $13,000, Sunland’s implicit rate of return on the lease of 9%. The following is a correct, complete amortization schedule created by Sunland. Date Lease Payment Interest (9%) on Outstanding Lease Receivable Reduction of Lease Receivable Balance of Lease Receivable 1/1/20 $13,000 1/1/20 $3,481 $3,481 9,519 1/1/21 3,481 $857 2,624 6,895 1/1/22 3,481 621 2,860 4,035 1/1/23 3,481 363 3,118 917 12/31/23 1,000 83 917 0 $14,924 $1,924 $13,000 Given the above schedule, make the appropriate entries at December 31, 2023, to record the accrual of interest and the return of the storage unit to Sunland (assuming the unit is returned on December 31, 2023, at the expected and guaranteed residual value of $1,000). (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

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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Sunland Company specializes in leasing large storage units to other businesses. Sunland entered a contract to lease a storage unit to Riskey, Inc. for 4 years when that particular storage unit had a remaining useful life of 5 years. The fair value of the unit was $13,000 at the commencement of the lease on January 1, 2020. The present value of the five equal rental payments of $3,481 at the start of each year, plus the present value of a guaranteed residual value of $1,000, equals the fair value of $13,000, Sunland’s implicit rate of return on the lease of 9%. The following is a correct, complete amortization schedule created by Sunland.

Date	Lease Payment	Interest (9%) on Outstanding Lease Receivable		Reduction of Lease Receivable	Balance of Lease Receivable
1/1/20							$13,000
1/1/20	$3,481					$3,481	9,519
1/1/21	3,481		$857			2,624	6,895
1/1/22	3,481		621			2,860	4,035
1/1/23	3,481		363			3,118	917
12/31/23	1,000		83			917	0
	$14,924		$1,924			$13,000

Given the above schedule, make the appropriate entries at December 31, 2023, to record the accrual of interest and the return of the storage unit to Sunland (assuming the unit is returned on December 31, 2023, at the expected and guaranteed residual value of $1,000). (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit


(To record accrual of interest)


(To record residual value of asset)

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