Oriole Inc. manufactures an X-ray machine with an estimated life of 12 years and leases it to Chambers Medical Center for a period of 10 years. The normal selling price of the machine is $501,047, and its guaranteed residual value at the end of the non-cancelable lease term is estimated to be $14,500. The hospital will pay rents of $60,700 at the beginning of each year. Oriole incurred costs of $225,000 in manufacturing the machine and $14,600 in legal fees directly related to the signing of the lease. Oriole has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 5%. Click here to view factor tables.

Incorrect answer iconYour answer is incorrect.

Discuss the nature of this lease in relation to the lessor. The nature of this lease in relation to the lessor is operating leasefinance leasesales-type lease. Compute the amount of each of the following items. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 0 decimal places, e.g. 5,275.)

(1)		Lease receivable at commencement of the lease		$
(2)		Sales price		$
(3)		Cost of sales		$

eTextbook and Media

Solution

List of Accounts

Incorrect answer iconYour answer is incorrect.

Prepare a 10-year lease amortization schedule for Oriole, the lessor. (Round answers to 0 decimal places e.g. 5,275.)

ORIOLE INC. (Lessor) Lease Amortization Schedule (Annuity due basis, guaranteed residual value)
Beginning of Year		Annual Lease Payment Plus Residual Value		Interest on Lease Receivable		Recovery of Lease Receivable		Lease Receivable
Initial PV		$		$		$		$
1
2
3
4
5
6
7
8
9
10
End of 10
		$		$		$

eTextbook and Media

List of Accounts

Partially correct answer iconYour answer is partially correct.

Prepare all of the lessors journal entries for the first year. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places e.g. 5,275.)

No.	Account Titles and Explanation	Debit	Credit
1.
	(To record the lease.)
	(To record direct costs incurred on account.)
2.
	(To record receipt of the first lease payment.)
3.
	(To record interest earned during the first year of the lease.)