Chapter 18, Problem 18.12P

Direct Financing Lease, Deferred Selling Profit, Lessor, Amortization Schedules, Journal Entries. Crabtree Products, Inc. leases machinery to Beane Poll Enterprises. The machinery is not specialized. The lease is for 3 years requiring payments of $22,500 at the beginning of each lease year (April 1). The equipment has a fair value of $82,833 and is carried in Crabtree's inventory at $72,833. The expected residual value for the asset is $25,000. Crabtree obtains a third-party residual value guarantee in the amount of $15,000. Therefore, the unguaranteed residual value is $10,000. Crabtree pays $2,000 in sales commissions related to the lease transaction. This lease is classified as a direct financing lease Crabtree has a December 31 year-end

Required

Prepare the journal entries for the lessor to account for this transaction over the 3-year period, and provide all supporting computations and amortization tables. Assume the machine has a fair value of $0 at the end of the lease.