Rock Hall Financing leased some equipment to Cherry Hill Company on January 1, 2014. The lease required six annual payments with the first payment due on December 31, 2014. The cost, and also fair value, of the equipment was $100,000. The equipment had an estimated residual value of $10,000 at the end of the six-year period. The residual value was guaranteed by the lessee. The lease was a direct financing lease and qualifies as a capital lease for Cherry Hill. Rock Hall's desired rate of return is 8%.
Required:
(For all answers, round to the nearest dollar.)
a.Compute the amount of the equal annual payments.
b.Prepare all December 31, 2014 journal entries on Cherry Hill's books.
c.Use the same information, but assume that the payments are due on January 1 of each year with the first payment due January 1, 2014. Determine the amount of the equal annual payments and determine the amount of interest revenue Rock Hall would recognize for the year ended December 31, 2014.

Question

Rock Hall Financing leased some equipment to Cherry Hill Company on January 1, 2014. The lease required six annual payments with the first payment due on December 31, 2014. The cost, and also fair value, of the equipment was $100,000. The equipment had an estimated residual value of $10,000 at the end of the six-year period. The residual value was guaranteed by the lessee. The lease was a direct financing lease and qualifies as a capital lease for Cherry Hill. Rock Hall's desired rate of return is 8%.
Required:
(For all answers, round to the nearest dollar.) 
a.Compute the amount of the equal annual payments.
b.Prepare all December 31, 2014 journal entries on Cherry Hill's books.
c.Use the same information, but assume that the payments are due on January 1 of each year with the first payment due January 1, 2014. Determine the amount of the equal annual payments and determine the amount of interest revenue Rock Hall would recognize for the year ended December 31, 2014.

Quizplus · Accepted Answer

The Answer of Rock Hall Financing leased some equipment to Cherry Hill Company on January 1, 2014. The lease required six annual payments with the first payment due on December 31, 2014. The cost, and also fair value, of the equipment was $100,000. The equipment had an estimated residual value of $10,000 at the end of the six-year period. The residual value was guaranteed by the lessee. The lease was a direct financing lease and qualifies as a capital lease for Cherry Hill. Rock Hall's desired rate of return is 8%.
Required:
(For all answers, round to the nearest dollar.) 
a.Compute the amount of the equal annual payments.
b.Prepare all December 31, 2014 journal entries on Cherry Hill's books.
c.Use the same information, but assume that the payments are due on January 1 of each year with the first payment due January 1, 2014. Determine the amount of the equal annual payments and determine the amount of interest revenue Rock Hall would recognize for the year ended December 31, 2014.

Rock Hall Financing Leased Some Equipment to Cherry Hill Company