Flagstaff, a lessor, entered into a sales-type lease with another company on January 1, 2014. The lease was for four years with $40,000 payments due at the end of each year. The cost of the equipment on Flagstaff's books was $120,000. Actuarial information for 7%, the implicit rate, follows:
Required:
a.Prepare all journal entries for Flagstaff for the year 2014.
b.Use the same information as above, but assume that there is an unguaranteed residual value of $8,000. Answer the following questions:
(1) What would be the charge to Cost of Asset Leased?
(2)What would be the charge to the initial gross receivable?
(3)What would be the credit to Sales?

Question

Flagstaff, a lessor, entered into a sales-type lease with another company on January 1, 2014. The lease was for four years with $40,000 payments due at the end of each year. The cost of the equipment on Flagstaff's books was $120,000. Actuarial information for 7%, the implicit rate, follows:  
Required: 
a.Prepare all journal entries for Flagstaff for the year 2014.
b.Use the same information as above, but assume that there is an unguaranteed residual value of $8,000. Answer the following questions:
 (1)	What would be the charge to Cost of Asset Leased?
(2)What would be the charge to the initial gross receivable?
(3)What would be the credit to Sales?

Quizplus · Accepted Answer

The Answer of Flagstaff, a lessor, entered into a sales-type lease with another company on January 1, 2014. The lease was for four years with $40,000 payments due at the end of each year. The cost of the equipment on Flagstaff's books was $120,000. Actuarial information for 7%, the implicit rate, follows:  
Required: 
a.Prepare all journal entries for Flagstaff for the year 2014.
b.Use the same information as above, but assume that there is an unguaranteed residual value of $8,000. Answer the following questions:
 (1)	What would be the charge to Cost of Asset Leased?
(2)What would be the charge to the initial gross receivable?
(3)What would be the credit to Sales?

Flagstaff, a Lessor, Entered into a Sales-Type Lease with Another