Franklin Co. leased its manufactured equipment to Parker Inc. for a 4-year term. Franklin Co....
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Franklin Co. leased its manufactured equipment to Parker Inc. for a 4-year term. Franklin Co. reported a book value of $60,000 for the equipment in its inventory account. The lease commenced on January 1, 2020, with the first annual payment of $18,500 due immediately. The equipment has a useful life of 4 years, an estimated fair value of $68,880, and no residual or salvage value. The implicit rate of the lease is 5% and collectability of the lease payments from Parker is probable. Which of the following is true regarding Franklins journal entries at the commencement of the sales-type lease?
| a. | The lease payable is equal to $68,880
| |
| b. | The Sales Revenue on Franklins books is equal to $68,880
| |
| c. | The Gross loss resulting from the initial entries is $8,880
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| d. | The lease receivable is equal to $55,000 |
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