Question

Knowledge Check 01 On January 1, Year 1, Manlier Inc. leased equipment costing $45,000 to one of its customers. The sales-type lease agreement specifies six annual payments of $15,000 beginning on that date. The present value of the annual lease payments is $73,619. At the end of the lease, the equipment will be returned to Manlier and is expected to have a residual value of $5,000. The present value of that residual value is $2,822. Complete the appropriate journal entry recorded by Manlier at the beginning of the lease. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to the nearest whole number.)

Answer 1

Dr Lease receivable $76,441

Dr Cost of goods sold $42,178

Cr Sales revenue $73,619

Cr Equipment $45,000

Step-by-step explanation:

Preparation of Journal entry

Based on the information given we were told that leased equipment cost the amount of $45,000 in which the lease agreement as well has a 6 annual payments of the amount of $15,000 while the present value of the lease agreement is the amount of $73,619 and the present value of the residual value is the amount of $2,822 which means that the Journal entry at beginning of the lease will be recorded as:

Dr Lease receivable $76,441

($73,619+$2,822)

Dr Cost of goods sold $42,178

($45,000-$2,822)

Cr Sales revenue $73,619

Cr Equipment $45,000