On January 1, 2018, Patagonia Leasing leased equipment to Pebble Services under a finance/sales-type lease designed to earn Patagonia a 12% rate of return for providing long-term financing. The lease agreement specified:
a. Ten annual payments of $110,000 beginning January 1, 2018, the beginning of the lease and each December 31 thereafter through 2026.
b. The estimated useful life of the leased equipment is 10 years with no residual value. Its cost to Patagonia was $632,824.
c. The lease qualifies as a finance lease/sales-type lease.
d. A 10-year service agreement with Mechanics International was negotiated to provide maintenance of the equipment as required. Payments of $10,000 per year are specified, beginning January 1, 2018. Patagonia was to pay this cost as incurred, but lease payments reflect this expenditure.
e. A partial amortization schedule, appropriate for both the lessee and lessor, follows:

Required:
Round your answers to the nearest whole dollar amounts.
Prepare the appropriate journal entries for both the lessee and lessor related to the lease on:
1. January 1, 2018.
2. December 31, 2018.

Question

On January 1, 2018, Patagonia Leasing leased equipment to Pebble Services under a finance/sales-type lease designed to earn Patagonia a 12% rate of return for providing long-term financing. The lease agreement specified:
a. Ten annual payments of $110,000 beginning January 1, 2018, the beginning of the lease and each December 31 thereafter through 2026.
b. The estimated useful life of the leased equipment is 10 years with no residual value. Its cost to Patagonia was $632,824.
c. The lease qualifies as a finance lease/sales-type lease.
d. A 10-year service agreement with Mechanics International was negotiated to provide maintenance of the equipment as required. Payments of $10,000 per year are specified, beginning January 1, 2018. Patagonia was to pay this cost as incurred, but lease payments reflect this expenditure.
e. A partial amortization schedule, appropriate for both the lessee and lessor, follows:

Required:
Round your answers to the nearest whole dollar amounts.
Prepare the appropriate journal entries for both the lessee and lessor related to the lease on:
1. January 1, 2018.
2. December 31, 2018.

Quizplus · Accepted Answer

The Answer of On January 1, 2018, Patagonia Leasing leased equipment to Pebble Services under a finance/sales-type lease designed to earn Patagonia a 12% rate of return for providing long-term financing. The lease agreement specified:
a. Ten annual payments of $110,000 beginning January 1, 2018, the beginning of the lease and each December 31 thereafter through 2026.
b. The estimated useful life of the leased equipment is 10 years with no residual value. Its cost to Patagonia was $632,824.
c. The lease qualifies as a finance lease/sales-type lease.
d. A 10-year service agreement with Mechanics International was negotiated to provide maintenance of the equipment as required. Payments of $10,000 per year are specified, beginning January 1, 2018. Patagonia was to pay this cost as incurred, but lease payments reflect this expenditure.
e. A partial amortization schedule, appropriate for both the lessee and lessor, follows:

Required:
Round your answers to the nearest whole dollar amounts.
Prepare the appropriate journal entries for both the lessee and lessor related to the lease on:
1. January 1, 2018.
2. December 31, 2018.

On January 1, 2018, Patagonia Leasing Leased Equipment to Pebble