Question
Lessor Company leases equipment to Lessee company on January 1, 2012. The lease is appropriately recorded as a purchase for accounting purposes for Lessee and
Lessor Company leases equipment to Lessee company on January 1, 2012. The lease is appropriately recorded as a purchase for accounting purposes for Lessee and as a sale for accounting purposes for Lessor. The lease is for a ten-year period. Equal annual payments under the lease are $25,000 and are due on January 1 of each year. The first payment is made on January 1, 2012. The cost of the equipment on Lessor's accounting records is $100,000. The equipment has an estimated useful life of ten years with no residual value expected. The rate of interest contemplated by lessor and lessee is 8%. Assume that the present value of the lease payments equals the market value of the equipment. Assume this is a sales type lease.
a. Prepare the entries required for lessor on January 1, 2012
b. Prepare the entries required for Lessor at December 31,2012
c. Prepare the entry required for Lessor on January 1, 2013
d. Prepare the entries required for Lessor on December 31, 2013
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