Question

Franklin Co. leased its manufactured equipment to Parker Inc. for a 4-year term. Franklin Co. reported...

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.

Homework Answers

Answer #1
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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