Question
Larkspur Leasing Company signs a lease agreement on January 1, 2017, to lease electronic equipment to Crane Company. The term of the non-cancelable lease is
Larkspur Leasing Company signs a lease agreement on January 1, 2017, to lease electronic equipment to Crane Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement:
1. Crane has the option to purchase the equipment for $21,000 upon termination of the lease. It is not reasonably certain that Crane will exercise this option.
2. The equipment has a cost of $220,000 and fair value of $259,000 to Larkspur Leasing. The useful economic life is 2 years, with a residual value of $21,000.
3. Larkspur Leasing desires to earn a return of 5% on its investment.
4. Collectibility of the payments by Larkspur Leasing is probable.
Prepare the journal entries on the books of Larkspur Leasing to reflect the payments received under the lease and to recognize income for the years 2017 and 2018.
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