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vfiekz [6]
2 years ago
14

Crosley Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2020. The lease is for an 8-year perio

d and requires equal annual payments of $35,004 at the beginning of each year. The first payment is received on January 1, 2020. Crosley had purchased the machine during 2019 for $160,000. Collectibility of lease payments by Crosley is probable. Crosley set the annual rental to ensure a 6% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Crosley at the termination of the lease.
Instructions:
a. Compute the amount of the lease receivable.
b. Prepare all necessary journal entries for Crosley for 2020.
c. Suppose the collectibility of the lease payments was not probable for Crosley. Prepare all necessary journal entries for the company in 2020.
d. Suppose at the end of the lease term, Crosley receives the asset and determines that it actually has a fair value of $1,000 instead of the anticipated residual value of $0. Record the entry to recognize the receipt of the asset for Crosley at the end of the lease term.
Business
1 answer:
Misha Larkins [42]2 years ago
6 0

Answer:

A.$230,410

B. 01-Jan-17

Lease Receivable $230,410

Cost of Goods Sold $160,000

Sales Revenue $230,410

Inventory $160,000

01-Jan-17

Dr Cash $35,004

Cr Lease Receivable $35,004

31-Dec-17

Dr Lease Receivable $11,724

Cr Interest Revenue $11,724

C)01-Jan-17

Dr Cash $35,004

Cr Deposit Liability $35,004

D. Dr Inventory $1,000

Cr Gain on Lease $1,000

Explanation:

A. Computation for the amount of the lease receivable.

PV of lease= PV(rate, nper, pmt, [fv]), [type])

PV of lease= -PV (6%,8,35004, , 1)

PV of lease =$230,410

Therefore the amount of the lease receivable is $230,410

B. Preparation of all necessary journal entries for Crosley for 2020.

01-Jan-17

Lease Receivable $230,410

Cost of Goods Sold $160,000

Sales Revenue $230,410

Inventory $160,000

01-Jan-17

Dr Cash $35,004

Cr Lease Receivable $35,004

31-Dec-17

Dr Lease Receivable $11,724

Cr Interest Revenue $11,724

C. Preparation of all necessary journal entries for the company in 2020.

01-Jan-17

Dr Cash $35,004

Cr Deposit Liability $35,004

D. Preparation to Record the entry to recognize the receipt of the asset for Crosley at the end of the lease term

Dr Inventory $1,000

Cr Gain on Lease $1,000

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<u>First, we need to structure the total cost formula for each option:</u>

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On December 31, 2016, Ditka Inc. had Retained Earnings of $285,800 before its closing entries were prepared and posted. During 2
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<u>Closing Entries Dated 31, 2016</u>

                                            Dr.             Cr.

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Service revenue            $186,100

Interest revenue            $90,300

Income Summary                             $276,400

Closing Expense Accounts

Income Summary           $153,400

Supplies Expense                            $96,900

Advertising expenses                      $18,200

Salaries and wages                         $21,000

Income tax expense                        $17,300

Closing Income Summary Account

Income Summary           $123,000

Retained Earning                             $123,000

Closing Dividend Account

Retained Earning           $7,800

Dividend                                           $7,800

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