Question
Nash Corporation enters into a 6-year lease of equipment on December 31, 2019, which requires 6 annual payments of $39,000 each, beginning December 31, 2019.
Nash Corporation enters into a 6-year lease of equipment on December 31, 2019, which requires 6 annual payments of $39,000 each, beginning December 31, 2019. In addition, Nash guarantees the lessor a residual value of $20,300 at the end of the lease. However, Nash believes it is probable that the expected residual value at the end of the lease term will be $10,300. The equipment has a useful life of 6 years. Assume that for Lost Ark Company, the lessor, collectibility of lease payments is probable and the carrying amount of the equipment is $150,000. Prepare Lost Arks 2019 and 2020 journal entries, assuming the implicit rate of the lease is 11% and this is known to Nash.
Date Account Titles and Explanation Debit Credit December 31, 2019 4 Lease Receivable (To record the lease) December 31, 2019 4 | Cash 39000 Lease Receivable 39000 (To record receipt of lease payment) December 31, 2020 - Cash 39000 Lease ReceivableStep by Step Solution
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