Hayes Corp. is a manufacturer of truck trailers. On January 1, 2021, Hayes Corp. leases ten trailers to Lester Company under a six-year noncancelable lease agreement. The following information about the lease and the trailers is provided:

1. Equal annual payments that are due on January 1 each year provide Hayes Corp. with an 8% return on net investment (present value factor for 6 periods at 8% is 4.99271).

2. Titles to the trailers pass to Lester at the end of the lease.

3. The fair value of each trailer is $60,000. The cost of each trailer to Hayes Corp. is $54,000. Each trailer has an expected useful life of nine years.

4. Collectibility of the lease payments is probable.

Explanation:

This lease is a sales-type lease to the lessor, Hayes Corp. Hayess (the manufacturer) profit upon sale is $60,000, which is recognized in the year of sale (2021). It is not an operating lease because title to the assets passes to the lessee, and the present value ($600,000) of the lease payments equals or exceeds 90% ($540,000) of the fair value of the leased trailers.

The annual lease payments and amortization schedule for Hayes Corp. for the first three years are presented below:

Lease Amortization Schedule (Lessor)

Lease

Annual Interest on Receivable Lease

Date Lease Rental Lease Receivable Reduction Receivable

1/1/21 $600,000

1/1/21 $120,175 $-0- $120,175 479,825

1/1/22 120,175 38,386 81,789 398,036

1/1/23 120,175 31,843 88,332 309,704

Instructions

Prepare the journal entries for the lessor for 2021 to record the lease agreement, the receipt of the lease rentals, and the recognition of revenue (assume the use of a perpetual inventory method and round all amounts to the nearest dollar).

		Debit	Credit
1/1/21
1/1/21
12/31/21