Q2: Bargain purchase option; lessor;

Universal Leasing leases electronic equipment to a variety of businesses. The companys primary service is providing alternate financing by acquiring equipment and leasing it to customers. Universal earns interest under these arrangements at a 11% annual rate.

The company leased an electronic typesetting machine it purchased for $47,900 to a local publisher, Desktop Inc., on December 31, 2020. The lease contract specified annual payments of $10,165 beginning January 1, 2021, the inception of the lease, and each December 31 through 2022 (three-year lease term). The publisher had the option to purchase the machine on December 30, 2023, the end of the lease term, for $27,800 when it was expected to have a residual value of $31,800.

Required: 1. Show how Universal calculated the $10,165 annual lease payments.

Amount to be recovered :

Less: Present value of the BPO price:

Amount to be recovered through periodic lease payments:

Lease payments at the beginning each of three years:

2. Prepare an amortization schedule that describes the pattern of interest revenue for Universal Leasing.

Lease Amortization Schedule
Date	Payments	Effective Interest	Decrease in Balance	Outstanding Balance
01/01/2021
12/31/2021
12/31/2022
12/31/2023
Totals

3. Prepare the journal entry for Universal Leasing in 2021, 2022, and 2023.