RLyft Vell Equipment, Inc., [LVE] manufactures heavy duty cranes for use in construction and defense operations. One widely used model is the HiAbove which the company both sells at $146, 913 and leases to government agencies. It costs LVE $105,000 to manufacture this model. Over the years, the company has established a single standardized set of leasing terms from it does not deviate. HiAbove has an estimated useful life of ten years and an estimated salvage value of $4,000. The crane is leased for seven years following which it will revert back to the lessor. The lessor estimates a residual value of $10,000 at the end of the lease term, charges an annual interest rate of 12% and expects the equipment to be returned in a good working condition. The title does not pass at anytime to the lessee. The interest rate charged is always disclosed in the lease contract. Further, the lessee agrees to bear all executory costs to operate the crane and amounts to $7,000 annually. LVE uses the straight-line amortization method, has December 31 year ends and has adopted IFRS. Finally, lease instalments are due at the beginning of each calendar year. Now assume LVE leases one unit of HiAbove to Coburg Construction commencing January 1, 2018 on its standard terms.

The journal entry required by LVE to record the lease transaction on January 1, 2018, given the residual value is not guaranteed, would be:

Select one:

a. DR Lease Instalments Receivable $195,000; CR Lease Sales $195,000

b. DR Lease Instalments Receivable $205,000; DR Cost of Goods Sold $100,476; CR Sales Revenue $142,389; CR Inventory $105,000; CR Unearned Interest Income $58,087

c. DR Lease Instalments Receivable $205,000; DR Cost of Goods Sold $105,000; CR Sales Revenue $146,913; CR Inventory $105,000; CR Unearned Interest Income $58,087

d. DR Lease Instalments Receivable $161,913; DR Cost of Goods Sold $105,000; CR Sales Revenue $146,913; CR Inventory $105,000; CR Unearned Interest Income $15,000

e. none of the above entries.

Answer rating: 100% (QA)

The detailed answer for the above question is provided below The correct answer is option C Answer c ... View the full answer