Question
General, Inc. leases equipment to different types of businesses. The company generally acquires the equipment and leases the equipment to its customers under long-term sales-type
General, Inc. leases equipment to different types of businesses. The company generally acquires the equipment and leases the equipment to its customers under long-term sales-type leases. Generals implicit interest in the lease arrangements is 10% annual rate.
General leased its machine that it purchased for $30,900 to a lessee, Oscar Company on January 1, 2018. The lease contract specified annual payments of $8,000 beginning January 1, 2018, the beginning of the lease, and each January 1 through 2020 (three-year lease term). Oscar Company has the option to purchase the machine at the end of the lease term, December 31, 2020, for $12,000 when it is expected to have a residual value of $16,000, considered a bargain purchase amount. The Companys year-end is 12/31.
Required:
1. Show how General calculated the $8,000 annual lease payments for this sales-type lease.
2. Prepare an amortization schedule that describes the pattern of interest revenue for General, Inc. over the lease term.
3. Prepare the appropriate entries for General, Inc. from the beginning of the lease through the end of the lease term.
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