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Salcedo Co. leased equipment to Erickson Inc. on April 1, 2011. The lease, appropriately recorded as a

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Salcedo Co. leased equipment to Erickson Inc. on April 1, 2011. The lease, appropriately recorded as a sale by Salcedo, is for an 8-year period ending March 31, 2019. The first of eight equal annual payments of $175,000 (excluding executory costs) was made on April 1, 2011. The cost of the equipment to Salcedo is $940,000. The equipment has an estimated useful life of eight years with no residual value expected. Salcedo uses straight-line depreciation and takes a full year’s depreciation in the year of purchase. The cash selling price of the equipment is $1,026,900.

1. Give the entry required to record the lease on Salcedo’s books.

2. How much interest revenue will Salcedo recognize in 2011?


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1 Lease Payments Receivable 1026900 Sales 1026900 Cost ...View the full answer


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In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue

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