Please round to two decimal places Berne Company (lessor) enters into a lease with Fox Company to lease equipment to Fox beginning January 1, 2016 The lease terms, provisions, and related events are as follows 1 The lease term is 4 years The lease is noncancelable and requires annual rental payments of $50,000 to be made at the end of each year 2 The equipment costs $130,000 The equipment has an estimated life of 4 years and an estimated residual value at the end of the lease term of zero 3 Fox agrees to pay all executory costs 4 The interest rate implicit in the lease is 12 5 The initial direct costs are insignificant and assumed to be zero 6 The collectibility of the rentals is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor Required 1 Next Level Determine if the lease is a sales type or direct financing lease from Bernes point of view (calculate the selling price and assume that this is also the fair value) 2 Prepare a table summarizing the lease receipts and interest revenue earned by the lessor 3 Prepare journal entries for Berne, the lessor, for the years 2016 and 2017 CHART OF ACCOUNTS Berne Company General Ledger ASSETS 111 Cash 121 Accounts Receivable 122 Lease Receivable 141 Inventory 152 Prepaid Insurance LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Interest 261 Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings REVENUE 411 Sales Revenue 431 Interest Revenue Leases EXPENSES 500 Cost of Asset Leased 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense Berne Company Lease Payments Received and Interest Revenue Earned Summary 2016 2019 1 Date Annual Lease Payment Received Interest Revenue at 12 on Net Investment Amount of Net Investment Recovered Lease Receivable Unearned Interest Leases Net Investment 2 January 1, 2016 3 December 31, 2016 4 December 31, 2017 5 December 31, 2018 6 December 31, 2019

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Aug 05, 2024

Please round to two decimal places Berne Company (lessor) enters into a lease with Fox Company to lease equipment to Fox beginning January 1, 2016.

Please round to two decimal places

Berne Company (lessor) enters into a lease with Fox Company to lease equipment to Fox beginning January 1, 2016. The lease terms, provisions, and related events are as follows:

1.	The lease term is 4 years. The lease is noncancelable and requires annual rental payments of $50,000 to be made at the end of each year.
2.	The equipment costs $130,000. The equipment has an estimated life of 4 years and an estimated residual value at the end of the lease term of zero.
3.	Fox agrees to pay all executory costs.
4.	The interest rate implicit in the lease is 12%.
5.	The initial direct costs are insignificant and assumed to be zero.
6.	The collectibility of the rentals is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor.

Required:

1.	Next Level Determine if the lease is a sales-type or direct financing lease from Bernes point of view (calculate the selling price and assume that this is also the fair value).
2.	Prepare a table summarizing the lease receipts and interest revenue earned by the lessor.
3.	Prepare journal entries for Berne, the lessor, for the years 2016 and 2017.

CHART OF ACCOUNTS

Berne Company

General Ledger

	ASSETS
111	Cash
121	Accounts Receivable
122	Lease Receivable
141	Inventory
152	Prepaid Insurance

	LIABILITIES
211	Accounts Payable
231	Salaries Payable
250	Unearned Interest
261	Income Taxes Payable

	EQUITY
311	Common Stock
331	Retained Earnings

	REVENUE
411	Sales Revenue
431	Interest Revenue: Leases

	EXPENSES
500	Cost of Asset Leased
511	Insurance Expense
512	Utilities Expense
521	Salaries Expense
532	Bad Debt Expense
540	Interest Expense
541	Depreciation Expense
559	Miscellaneous Expenses
910	Income Tax Expense

Berne Company

Lease Payments Received and Interest Revenue Earned Summary

2016 - 2019

1	Date	Annual Lease Payment Received	Interest Revenue at 12% on Net Investment	Amount of Net Investment Recovered	Lease Receivable	Unearned Interest: Leases	Net Investment
2	January 1, 2016
3	December 31, 2016
4	December 31, 2017
5	December 31, 2018
6	December 31, 2019