Franklin Co. leased its manufactured equipment to Parker Inc. for a 4-year term. Franklin Co. reported a book value of $165,000 for the equipment in its inventory account. The lease commenced on January 1, 2020, with the first annual payment of $55,500 due immediately. The equipment has a useful life of 4 years, an estimated fair value of $206,640, and no residual or salvage value. The implicit rate of the lease is 5% and collectibility of the lease payments from Parker is probable. Record Franklin’s journal entries at the commencement of the sales-type lease.
|Date||Account titles and explanations||Debit||Credit|
|01-01-2020||Lease receivable||$ 206,640.00|
|Sales revenue||$ 206,640.00|
|[To record lease receivable]|
|01-01-2020||Cost of goods sold||$ 165,000.00|
|[To record cost of goods sold]|
|lease receivable||$ 55,500.00|
|[To record receipt of lease receivable]|
|31-12-2020||Lease receivable [(206640-55500)*5%]||$ 7,557.00|
|Interest revenue||$ 7,557.00|
|[To record interest revenue]|
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