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Q11BE

Expert-verified
Intermediate Accounting (Kieso)
Found in: Page 1240

Short Answer

Geiberger Corporation manufactures replicators. On January 1, 2017, it leased to Althaus Company a replicator that had cost $110,000 to manufacture. The lease agreement covers the 5-year useful life of the replicator and requires 5 equal annual rentals of $40,800 payable each January 1, beginning January 1, 2017. An interest rate of 12% is implicit in the lease agreement. Collectibility of the rentals is reasonably assured, and there are no important uncertainties concerning costs. Prepare Geiberger’s January 1, 2017, journal entries.

Lease Receivable is $164,724

See the step by step solution

Step by Step Solution

Step 1: Meaning of Lease

A lawful bilateral agreement that gives the lessee the right to use the property or equipment is called a lease. The lessee has to pay lease liability according to the lease agreement made between the lessor and lessee.

Step 2: Preparing Journal Entries

Date

Particular

Debit ($)

Credit ($)

Jan.1, 2017

Lease Receivable

164,724

Sales Revenue

164,724

Working Notes:-

Calculation of Lease Receivable

Note:Present value of an annuity due of 1 for 5 periods at 12%.

Date

Particular

Debit ($)

Credit ($)

Jan.1, 2017

Cost of Goods Sold

110,000

Inventory

110,000

Jan.1, 2017

Cash

40,800

Lease Receivable

40,800

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