Exercise 21-12 (Part Level Submission) On January 1, 2020, Ivanhoe Company leased equipment to Flynn Corporation. The following information pertains to this lease. 1. The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment for $2,000, while the expected residual value at the end of the lease is $7,000. 2. Equal rental payments are due on January 1 of each year, beginning in 2020. 3. The fair value of the equipment on January 1, 2020, is $120,000, and its cost is $90,000. 4. The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line basis. 5. Ivanhoe set the annual rental to ensure a 4 rate of retum. Flynn's incremental borrowing rate is 196, and the implicit rate of the lessor is 6. Collectibility of lease payments by the lessor is probable. Both the lessor and the lessee's accounting periods end on December 31. unknown. Date Account Titles and Explanation Debit Credit 11/1/20 Lease Receivable 120000 Cost of Goods Sold 90000 Sales Revenue 120000 90000 Inventory (To record the lease) 1/1/20 Cash 21721 21721 Lease Receivable (To record lease payment) 712/31/20 Lease Receivable 3931 Interest Revenue 3931 Suppose the collectibility of the lease payments was not probable for Ivanhoe. Prepare the necessary journal entry for the company in 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit 11/20 |