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 | |
Inventory | $ 165,000.00 | ||
[To record cost of goods sold] | |||
01-01-2020 | Cash | $ 55,500.00 | |
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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