Deseret Finance Company purchased a printing press to lease to Quality Printing Company. The lease was structured
Question:
Deseret Finance Company purchased a printing press to lease to Quality Printing Company. The lease was structured so that at the end of the lease period of 15 years, Quality would own the printing press. Lease payments required in this lease were $190,000 (excluding executory costs) per year, payable in advance. The cost of the press to Deseret was $1,589,673, which is also its fair value at the time of the lease.
1. Why is this a direct financing lease?
2. Give the entry to record the lease transaction on the books of Deseret Finance Company.
3. Give the entry at the end of the first year on Deseret Finance Company’s books to recognize interest revenue.
Step by Step Answer:
Intermediate Accounting
ISBN: 978-0324592375
17th Edition
Authors: James D. Stice, Earl K. Stice, Fred Skousen