(This problem requires use of present value tables.)
Paolo, Inc. (the lessor) entered into a sales-type lease with another company on January 1, 2014. The lease was for five years with $40,000 due at the end of each year. The cost of the equipment on Paolo's books was $140,000. Paolo uses an interest rate of 8%.
Required:
(Round all answers to the nearest dollar.) (Round all answers to the nearest dollar.)
a.Prepare all journal entries for Paolo for the year 2014.
b.If Paolo has mistakenly accounted for this lease as an operating lease, by how much would the company's 2014 income be overstated or understated because of this error? (Be sure to indicate under or over.)

Question

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The Answer of (This problem requires use of present value tables.)
Paolo, Inc. (the lessor) entered into a sales-type lease with another company on January 1, 2014. The lease was for five years with $40,000 due at the end of each year. The cost of the equipment on Paolo's books was $140,000. Paolo uses an interest rate of 8%.
Required:
(Round all answers to the nearest dollar.) (Round all answers to the nearest dollar.)
a.Prepare all journal entries for Paolo for the year 2014.
b.If Paolo has mistakenly accounted for this lease as an operating lease, by how much would the company's 2014 income be overstated or understated because of this error? (Be sure to indicate under or over.)

(This Problem Requires Use of Present Value Tables.)