Kobayashi Group manufactures a check-in kiosk with an estimated economic life of 12 years and leases it to Japan Airlines (JAL) (JPN) for a period of 10 years. The normal selling price of the equipment is ¥299,140, and its unguaranteed residual value at the end of the lease term is estimated to be ¥20,000. JAL will pay annual payments of ¥40,000 at the beginning of each year. Kobayashi incurred costs of ¥180,000 in manufacturing the equipment and ¥4,000 in sales commissions in closing the lease. Kobayashi has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 8%.
Instructions
a. Discuss the nature of this lease in relation to the lessor and compute the amount of each of the following items.
1. Lease receivable.
2. Sales price.
3. Cost of goods sold.
b. Prepare a 10-year lease amortization schedule for Kobayashi, the lessor.
c. Prepare all of the lessor's journal entries for the first year.