Question

Illini leases equipment to Cardinal Corporation under a four-year lease agreement on 1/1/20x1. The equipment has a net carrying value of $90,000 on Illini’s book on 1/1/20x1. The fair value of the equipment is $132,357. Illini’s initial costs incurred for the lease arrangement is $10,000. The lease specifies annual payments of $36,000 on each 1/1 and beginning 1/1/20x1. The expected useful life of the equipment is five years. The expected residual value of the equipment is $10,000, which is guaranteed by Cardinal. The implicit rate is 10%. Please refer to the instructions and the table in this question. Enter the correct journal entry for part [A].

Date	Account Name (Debit)	Account Name (Credit)	Debit	Credit
1/1/20X1	Investment in lease		[A]
	COGS		[B]
	Selling expense-Initial issuance cost		[C]
		Equipment		[D]
		Cash		[E]
		Sales revenue		[F]
1/1/20X1	Cash		[G]
		Investment in lease		[H]
12/31/20X1	Interest receivable		[I]
		Interest revenue		[J]
1/1/20X2	Cash		[K]
		Interest receivable		[L]
		Investment in lease		[M]
12/31/20X2	Interest receivable		[N]
		Interest revenue		[O]

Answer 1