Prepare the journal entries that Richie Company (the lessor) would make in the first year of the lease assuming the lease is classified as a sales-type lease.
Assume that the lessee is required to make payments on December 31 each year. Also assume that Richie had purchased the equipment at a cost of $200,000.
this is the only ither additional instructions that i got
Garvey Company (the lessee) entered into an equipment lease with Richie Company (the lessor) on January 1 of Year 1. 1. The equipment reverts back to the lessor at the end of the lease, and there is no bargain purchase option. The equipment is not specialized for Garvey. 2. The lease term is 5 years and requires Garvey to make annual payments of $65,949.37 at the end of each year. 3. The discount rate is 10%, which is implicit in the lease. Garvey knows this rate. 4. The tair value of the equipment at the lease inception is $250,000. The present value of an ordinary annuity of five payments of $65,949.37 each at 10% is $250,000. 5. The equipment has an estimated economic life of 7 years and has zero residual value at the end of this time. Straight-line depreciation is used for similar assets. Required: Prepare the joumal entries that Richie Company (the lessor) would make in the first year of the lease assuming the lease is classified as a salestype lease. Assume that the lessee is required to make payments on December 31 each year. Also assume that Richie had purchased the equipment at a cost of $200,000. How does grading work? Chart of Accounts CHART OF ACCOUNTS Richie Company General Ledger ASSETS REVENUE 111 Cash 411 Sales Revenue 121 Accounts Receivable 422 Interest Income 122 Lease Recelvable EXPENSES 141 Inventory 152 Prepaid Insurance 511 Insurance Expense 181 Equipment Leased to Others 512 Utilities Expense 520 Cost of Goods Sold LIABILITIES 521 Salaries Expense 211 Accounts Payable 532 Bad Debt Expense 231 Salaries Payable 540 Interest Expense Chart of Accounts 122 Lease Receivable 141 Inventory EXPENSES 152 Prepaid Insurance 511 Insurance Expense 181 Equipment Leased to Others 512 Utilities Expense 520 Cost of Goods Sold LIABILITIES 521 Salaries Expense 211 Accounts Payable 532 Bad Debt Expense 231 Salaries Payable 540 interest Expense 250 Unearned interest 559 Miscellaneous Expenses 261 Income Taxes Payabie 910 income Tax Expense EQUITY 311 Common Stock 331 Retained Eamings
