Tamarisk Corporation enters into a 7-year lease of equipment on December 31, 2019, which requires 7 annual payments of $38,200 each, beginning December 31, 2019. In addition, Tamarisk guarantees the lessor a residual value of $18,500 at the end of the lease. However, Tamarisk believes it is probable that the expected residual value at the end of the lease term will be $8,500. The equipment has a useful life of 7 years. Assume that for Lost Ark Company, the lessor, collectibility of lease payments is probable and the carrying amount of the equipment is $170,000.
Tamarisk Corporation enters into a 7-year lease of equipment on December 31, 2019, which requires 7 annual payments of $38,200 each, beginning December 31, 2019. In addition, Tamarisk guarantees the lessor a residual value of $18,500 at the end of the lease. However, Tamarisk believes it is probable that the expected residual value at the end of the lease term will be $8,500. The equipment has a useful life of 7 years. Assume that for Lost Ark Company, the lessor, collectibility of lease payments is probable and the carrying amount of the equipment is $170,000.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
23.
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Your answer is partially correct.
Tamarisk Corporation enters into a 7-year lease of equipment on December 31, 2019, which requires 7 annual payments of $38,200 each, beginning December 31, 2019. In addition, Tamarisk guarantees the lessor a residual value of $18,500 at the end of the lease. However, Tamarisk believes it is probable that the expected residual value at the end of the lease term will be $8,500. The equipment has a useful life of 7 years. Assume that for Lost Ark Company, the lessor, collectibility of lease payments is probable and the carrying amount of the equipment is $170,000.
Prepare Lost Ark’s 2019 and 2020journal entries , assuming the implicit rate of the lease is 11% and this is known to Tamarisk. (Credit account titles are automatically indented when amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places e.g. 5,275. Record journal entries in the order presented in the problem.)
Click here to view factor tables.
Prepare Lost Ark’s 2019 and 2020
Click here to view factor tables.
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Account Titles and Explanation
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Debit
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Credit
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(To record the lease)
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(To record receipt of lease payment)
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Expert Solution
Step 1
Answer -
Journal Entry in Lost Ark’s for 2019 -
| Date | Particular | Debit | Credit |
| Dec 31, 2019 | Lease Receivable | $188,831 | |
| Cost of Goods Sold | $ 170,000 | ||
| Inventory | $170,000 | ||
| Sales Revenue | $188,831 | ||
| (To record the lease) | |||
| Dec 31, 2019 | Cash | $ 38,200 | |
| Lease Receivable | $ 38,200 | ||
| (To record receipt of lease payment) |
Working Notes -
Lease Receivable= [($38,200 × 4.71) + ($18,500 × 0.4816)]
= 179922 + 8909.60
= $ 188,831
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