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Ravis Rent-A-Car Company leases a car to Ira Reem, an employee, on January 1, 2019. The term of the noncancelable lease is 4 years. The
Ravis Rent-A-Car Company leases a car to Ira Reem, an employee, on January 1, 2019. The term of the noncancelable lease is 4 years. The following information about the lease is provided:
1. | Title to the car passes to Ira on the termination of the lease with no additional payment required by the lessee. |
2. | The cost and fair value of the car is $8,400. The car has an economic life of 5 years. |
3. | The interest rate implicit in the lease is 10%. |
4. | It is probable that Ravis will collect the lease payments. |
5. | Equal annual lease payments are due at the end of each year. |
Required:
1. | Next Level What type of lease is this to Ravis Rent-A-Car Company? Why? |
2. | Prepare a table summarizing the lease receipts and interest income earned by the Ravis Rent-A-Car for the 4-year lease term. |
3. | Prepare the journal entries for 2019 and 2020 to record the lease agreement, the lease receipts, and the recognition of income on the books of Ravis Rent-A-Car. |
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