Edom Company, the lessor, enters into a lease with Davis Company to lease equipment to Davis beginning January 1, 2016. The lease terms, provisions, and related events are as follows:

1.	The lease term is 5 years. The lease is noncancelable and requires annual rental receipts of $100,000 to be made in advance at the beginning of each year.
2.	The equipment costs $313,000. The equipment has an estimated life of 6 years and, at the end of the lease term, has an unguaranteed residual value of $20,000 accruing to the benefit of Edom.
3.	Davis agrees to pay all executory costs.
4.	The interest rate implicit in the lease is 14%.
5.	The initial direct costs are insignificant and assumed to be zero.
6.	The collectibility of the rentals is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor.

Required:

1.	Next Level Determine if the lease is a sales-type or direct financing lease from Edoms point of view (calculate the selling price and assume that this is also the fair value).
2.	Prepare a table summarizing the lease receipts and interest revenue earned by the lessor.
3.	Prepare journal entries for Edom, the lessor, for the years 2016 and 2017.

Chart of Accounts

CHART OF ACCOUNTS

Edom Company

General Ledger

	ASSETS
111	Cash
121	Accounts Receivable
122	Lease Receivable
141	Inventory
152	Prepaid Insurance

	LIABILITIES
211	Accounts Payable
231	Salaries Payable
250	Unearned Interest
261	Income Taxes Payable

	EQUITY
311	Common Stock
331	Retained Earnings

	REVENUE
411	Sales Revenue
431	Interest Revenue: Leases

	EXPENSES
500	Cost of Asset Leased
511	Insurance Expense
512	Utilities Expense
521	Salaries Expense
532	Bad Debt Expense
540	Interest Expense
559	Miscellaneous Expenses
910	Income Tax Expense

Next Level

Determine if the lease is a sales-type or direct financing lease from Edom's point of view.

Sales-type lease

Calculate the selling price and assume that this is also the fair value. Additional Instruction

Analysis

Prepare a table summarizing the lease receipts and interest revenue earned by the lessor. Additional Instructions

Edom Company

Lease Payments Received and Interest Revenue Earned Summary

2016 - 2020

1	Date	Annual Lease Payments Received	Interest Revenue at 14% on Net Investment	Lease Receivable	Unearned Interest: Leases	Net Investment
2	January 1, 2016
3	January 1, 2016
4	December 31, 2016
5	January 1, 2017
6	December 31, 2017
7	January 1, 2018
8	December 31, 2018
9	January 1, 2019
10	December 31, 2019
11	January 1, 2020
12	December 31, 2020

General Journal

Prepare journal entries for Edom, the lessor, for the year 2016. Additional Instructions

PAGE 1

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9

Prepare journal entries for Edom, the lessor, for the year 2017. Additional Instructions

PAGE 1

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4