Berne Company (lessor) enters into a lease with Fox Company to lease equipment to Fox beginning January
Question:
Berne Company (lessor) enters into a lease with Fox Company to lease equipment to Fox beginning January 1, 2019. The lease terms, provisions, and related events are as follows:
1. The lease term is 4 years. The lease is noncancelable and requires annual rental payments of $50,000 to be made at the end of each year.
2. The equipment costs $130,000. The equipment has an estimated life of 4 years and an estimated residual value at the end of the lease term of zero.
3. Fox agrees to pay all executory costs directly to a third party.
4. The interest rate implicit in the lease is 12%.
5. The initial direct costs are insignificant and assumed to be zero.
6. The collectability of the rentals is reasonably assured.
Required:
1. Next Level Assuming that the lease is a sales-type lease from Berne’s point of view, calculate the selling price and assume that this is also the fair value.
2. Prepare a table summarizing the lease receipts and interest income earned by Berne.
3. Prepare journal entries for Berne, the lessor, for the years 2019 and 2020.
Step by Step Answer:
Intermediate Accounting Reporting and Analysis
ISBN: 978-1337788281
3rd edition
Authors: James M. Wahlen, Jefferson P. Jones, Donald Pagach