Question

Assume that IBM leased equipment that was carried at a cost of $88,000 to Wildhorse Company. The term of the lease is 5 years December 31, 2019, with equal rental payments of $27,365 beginning December 31, 2019. The fair value of the equipment at commencement of the lease is $118,001. The equipment has a useful life of 5 years with no salvage value. The lease has an implicit interest rate of 8%, no bargain purchase option, and no transfer of title. Collectibility of lease payments for IBM is probable. Assume the sales-type lease was recorded at a present value of $118,001.

Required:
Prepare IBMâs December 31, 2020, entry to record the lease transaction with Wildhorse Company.

Answer 1

Note: The correct word is "Assume that IBM leased equipment that was carried at a cost of $118,001 to Wildhorse Company"

Date Account Titles and Explanation Debit Credit

Dec 31, Cash $27,365

2021 Lease Receivable $20,114

Interest Revenue b$7,251

[($118001 - $27365) * 8%]

(To record receipt of lease payment along with interest)