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 $500,000. 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 $500,000.4.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 10%.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.

1) The amount of equal rental receipt = Equipment cost / Annuity factory @ 10% for 8 years Annuity…

Answered: Next Level Assuming that the lease is a…

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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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 $500,000. 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 $500,000.
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 10%.
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.

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