Brief Exercise 21A-11

Assume that IBM leased equipment that was carried at a cost of $125,000 to Pharoah Company. The term of the lease is 5 years December 31, 2016, with equal rental payments of $35,330 beginning December 31, 2016. The fair value of the equipment at commencement of the lease is $155,000. The equipment has a useful life of 5 years with no salvage value. The lease has an implicit interest rate of 7%, 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 $155,000. Prepare IBMs December 31, 2017, entry to record the lease transaction with Pharoah Company. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.)