Jason Inc. uses leases as a means of selling its equipment. On January 1, 2019, Jason leased
Question:
Jason Inc. uses leases as a means of selling its equipment. On January 1, 2019, Jason leased a machine to Jeremy Manufacturing. The cost of the machine to Jason was $26,000. The fair market value (which was the sales price) was $29,991 at the time of the noncancelable lease. Jason expects to receive the full fair value of the equipment at 8% through the lease. Annual lease payments are payable each December 31 for 5 years. The machine's economic life is 8 years. The expected residual value of $3,000 is guaranteed by the lessee. The collectability of the lease payments is probable for the lessor.
Instructions:
1. Compute the annual lease payment.
2. Provide the necessary journal entries to record the transactions for the lessee and lessor for the period January 1, 2019 through December 31, 2020.
3. Compute lessor's sales profit in the first year of the lease
Fundamentals of Financial Management
ISBN: 9780273713630
13th Revised edition
Authors: James van Horne, John Wachowicz