(Lessor Computations and Entries; Sales-Type Lease with Guaranteed Residual Value) Laura Jennings Inc. manufactures an X-ray machine with an estimated life of 12 years and leases it to Craig Gocker Medical Center for a period of 10 years. The normal selling price of the machine is $343,734, and its guaranteed residual value at the end of the noncancelable lease term is estimated to be $15,000. The hospital will pay rents of $50,000 at the beginning of each year and all maintenance, insurance, and taxes. Laura Jennings Inc. incurred costs of $210,000 in manufacturing the machine and $14,000 in negotiating and closing the lease. Laura Jennings Inc. has determined that the collectibility of the lease payments is reasonably predictable, that there will be no additional costs incurred, and that the implicit interest rate is 10%.

Instructions

(Round all numbers to the nearest dollar.)

(a) Discuss the nature of this lease in relation to the lessor and compute the amount of each of the following items.

(1) Lease receivable at inception (2) Sales price.
of the lease. (3) Cost of sales.

(b) Prepare a 10-year lease amortization schedule.

(c) Prepare all of the lessor’s journal entries for the first year.