Question

Question 24 6 pts Cool Equip Corp leased equipment to Hy Marx Co.and recorded a lease of $600,000 in a 10-year sales-type lease. The cost of the equipment to Cool Equip Corp was $475,000. Lease payments are made annually at January 1 of each year beginning January 1, 2018. The interest rate charged by the lessor is 10%. Required: Prepare the appropriate journal entries on January 1, 2018 for Cool Equip Corp.

Answer 1

We assume that the equipment has no residual value.

Annuity factor = (1-(1+r)^-n)/r

Where r = 10%

n = 10

= 6.14457

Calculate annual rent, which is $97647.191. Because Hy marx co. makes the payment at the beginning of each period, use the calculation for anuuity factor above, At the intersection of 10 percent and 10 periods, you see that the factor is 6.14457

To get the annual rent, you have to subtract the present value of the residual value from the total lease amount ($150,000 – 0$ = $150000). Then divide $150000 by the annuity factor of 6.14457.

Journal entries

1) lease receivable a/c 600000

To sales a/c . 600000

(To record the lease)

2) cost of good sold a/c. 475000

To inventory a/c. 475000

( To record the cost)

3) cash a/c . 97647.191

To lease receivable 97647.191

(To record first lease payment)

For any query please comment and do give positive rating.