Question
On January 1, 2018, Sans Serif Publishers leased printing equipment from First Lease Corp. First LeaseCorp purchased the equipment from Compudec Corporation at a cost
On January 1, 2018, Sans Serif Publishers leased printing equipment from First Lease Corp. First LeaseCorp purchased the equipment from Compudec Corporation at a cost of $479,079.
The lease agreement specifies six annual payments of $92,931 beginning 1/1/18, the beginning of the lease, and at December 31 from 2018 through 2022. On December 31, 2023, at the end of the 6 year lease, and at the end of the six-year lease term, the equipment is expected to be worth $75,000, and San Serif has the option to purchase it for $60,000 on that date. The residual value after 7 years is zero. First LeaseCorp routinely acquires electronic equipment for lease to other firms. The interest rate in these financing arrangements is 10%.
Exercise of Purchase Option (12/31/23)
Sans Serif Publishers (Lessee) Dr. Interest Expense (10% * $54,542) $5,458
Dr. Lease Payable (difference) $54,542
Cr. Cash $60,000
CompuDec Corporation (Lessor)
Dr. Cash (exercise price) $60,000
Cr. Lease Receivable (account balance) $54,542
Cr. Interest revenue (10% * outstanding balance) $5,458
($54,542 is the balance of lease payable after all periodic lease payments have been made)
Since the lessee takes the BPO at the end of the lease, from the lessor's point of view, how come the journal doesn't have a debit entry saying "cash $60,000" and the lessor having a credit journal entry saying "equipment $60,000). This question comes from page 859 and 860 illustrations 15-14 and 15-14A in the Intermediate Accounting 9th edition by the authors Spiceland, Nelson, and Thomas.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started