Question

Marin Corporation manufactures drones. On December 31, 2016, it leased to Althaus Company a drone that had cost $118,900 to manufacture. The lease agreement covers the 5-year useful life of the drone and requires 5 equal annual rentals of $41,800 payable each December 31, beginning December 31, 2016. An interest rate of 10% is implicit in the lease agreement. Collectibility of the rentals is probable. Prepare Marin's December 31, 2016, journal entries. (Credit account titles are automatically indented when amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to O decimal places e.g. 5,275.) Click here to view the factor table. Date Account Titles and Explanation Debit Credit December 31, 2016 Lease Receivable Cost of Goods Sold Sales Revenue Inventory (To record the lease) December 31, 2016 Cash Lease Receivable (To record receipt of lease payment)

Answer 1

Answer and Explanation:

The journal entries are shown below:

1. Lease receivable ($41,800 × 4.1699) $174,302

Cost of goods sold $118,900

To Sales revenue $174,302

To Inventory $118,900

(Being the lease receivable is recorded)

Kindly refer to the present value of an annuity due table for 5 years at 10% i.e 4.1699

2. Cash $41,800

To Lease receivable $41,800

(Being receipt of lease payment is recorded)