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Assume that IBM leased equipment that was carried at a cost of $88,000 to Wildhorse Company. The term of the lease is 5 years December 31, 2019, with equal rental payments of $27,365 beginning December 31, 2019. The fair value of the equipment at commencement of the lease is $118,001. The equipment has a useful life of 5 years with no salvage value. The lease has an implicit interest rate of 8%, no bargain purchase option, and no transfer of title. Collectibility of lease payments for IBM is probable. Assume the sales-type lease was recorded at a present value of $118,001.

Required:
Prepare IBMâs December 31, 2020, entry to record the lease transaction with Wildhorse Company.

Sagot :

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Answer:

Note: The correct word is "Assume that IBM leased equipment that was carried at a cost of $118,001 to Wildhorse Company"

Date       Account Titles and Explanation        Debit        Credit

Dec 31,   Cash                                                    $27,365

2021             Lease Receivable                                            $20,114

                    Interest Revenue                                             b$7,251

                    [($118001 - $27365) * 8%]

               (To record receipt of lease payment along with interest)

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