Morey Corporation leases a tractor from Equity Leasing with a five-year non-cancelable lease on January 1, 2014 under the following terms:
1. Five payments of $26,379.74 (a 9% implicit rate, known to Morey) due at the end each year.
2. The payments were calculated based on the fair value (which is also the book value for Equity) of the tractor.
3. The lease is nonrenewable and the tractor reverts to Equity at the end of the lease term.
4. The tractor has a six-year economic life.
5. Morey has an excellent credit rating.
6. Equity offers no warranty on the tractor other than the manufacturer's two-year warranty that is handled directly with the manufacturer.
-Equity records this lease with which one of the following journal entries?
A) DR Gross investment in leased assets$~~~~~~~~$131,898.70 $~~~~~~~~$CR Equipment$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$131,898.70
B) DR Gross investment in leased assets$~~~~~~~~$131,898.70 $~~~~~~~~$CR Equipment$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~~$102,607.96 $~~~~~~~~$CR Unearned financing income- $~~~~~~~~$$~~~~~~$Leases$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$29,290.74

Question

Morey Corporation leases a tractor from Equity Leasing with a five-year non-cancelable lease on January 1, 2014 under the following terms:
1. Five payments of $26,379.74 (a 9% implicit rate, known to Morey) due at the end each year.
2. The payments were calculated based on the fair value (which is also the book value for Equity) of the tractor.
3. The lease is nonrenewable and the tractor reverts to Equity at the end of the lease term.
4. The tractor has a six-year economic life.
5. Morey has an excellent credit rating.
6. Equity offers no warranty on the tractor other than the manufacturer's two-year warranty that is handled directly with the manufacturer.
-Equity records this lease with which one of the following journal entries?
A) DR Gross investment in leased assets$~~~~~~~~$131,898.70 $~~~~~~~~$CR Equipment$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$131,898.70 
B) DR Gross investment in leased assets$~~~~~~~~$131,898.70 $~~~~~~~~$CR Equipment$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~~$102,607.96 $~~~~~~~~$CR Unearned financing income- $~~~~~~~~$$~~~~~~$Leases$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$29,290.74

Quizplus · Accepted Answer

The Answer of Morey Corporation leases a tractor from Equity Leasing with a five-year non-cancelable lease on January 1, 2014 under the following terms:
1. Five payments of $26,379.74 (a 9% implicit rate, known to Morey) due at the end each year.
2. The payments were calculated based on the fair value (which is also the book value for Equity) of the tractor.
3. The lease is nonrenewable and the tractor reverts to Equity at the end of the lease term.
4. The tractor has a six-year economic life.
5. Morey has an excellent credit rating.
6. Equity offers no warranty on the tractor other than the manufacturer's two-year warranty that is handled directly with the manufacturer.
-Equity records this lease with which one of the following journal entries?
A) DR Gross investment in leased assets$~~~~~~~~$131,898.70 $~~~~~~~~$CR Equipment$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$131,898.70 
B) DR Gross investment in leased assets$~~~~~~~~$131,898.70 $~~~~~~~~$CR Equipment$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~~$102,607.96 $~~~~~~~~$CR Unearned financing income- $~~~~~~~~$$~~~~~~$Leases$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$29,290.74

Morey Corporation Leases a Tractor from Equity Leasing with a Five-Year