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Manufacturers Southern leased high-tech electronic equipment from International Machines on January 1, 2018. International Machines manufactured the...

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Accounting

Manufacturers Southern leased high-tech electronic equipmentfrom International Machines on January 1, 2018. InternationalMachines manufactured the equipment at a cost of $104,000.Manufacturers Southern's fiscal year ends December 31. (FV of $1,PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Useappropriate factor(s) from the tables provided.)

Related Information:

Lease term2 years (8 quarterly periods)

Quarterly rental payments$18,200 at the beginning of eachperiod

Economic life of asset2 years

Fair value of asset$135,990

Implicit interest rate8%


Required:
1. Show how International Machines determined the $18,200 quarterlylease payments.
2. Prepare appropriate entries for International Machines to recordthe lease at its beginning, January 1, 2018, and the second leasepayment on April 1, 2018.

Answer & Explanation Solved by verified expert
4.3 Ratings (896 Votes)

Computation of Lease Payment
PVF of 8% for 2 year ie. 2% for 8 period= 7.472
Present Value of Lease Payment=Lease PaymentX PVAF
=$18200X 7.472= $135990
S. No. Accounts Title and explanations Debit $ Credit $
01-Jan Lease Receivable 1,35,990.00
Cost of Goods Sold 1,04,000.00
Sales Revenue 1,35,990.00
Inventory of Equiment 1,04,000.00
To Record Lease at inception
01-Jan Cash      18,200.00
Lease Receivable      18,200.00
To Record Lease Rental Received
01-Apr Cash      18,200.00
Lease Receivable (18200-2356)      15,844.00
Interest Revenue (135990-18200)*8%/4        2,356.00
To Record Lease Rental Received
If any doubt please let me know, and kindly mark with positive rating it would help me lot.

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