Recording Entries for Sales-Type Lease with Unguaranteed Residual ValueLessor

Lessor Corporation, a manufacturer of equipment, enters into a lease of specialized equipment with Lessee Corp. on January 1 of Year 1. Title to the asset remains with Lessor Corp. at the end of the lease. Lessee Corp. does not guarantee the residual value of the specialized equipment at the end of the lease term, and the lease contains no renewal or purchase options. The following information pertains to the lease.

Lease term	5 years
Economic life of the leased equipment	6 years
Annual lease payments	$1,098
Payment date (rst payment due at lease commencement)	Annually on Jan. 1
Fair value of the leased equipment	$5,200
Lessor Corps carrying value of the leased equipment	$4,500
Rate implicit in the lease (known by lessee)	6.02%
Estimated fair value of the equipment at the end of the lease term	$400

Complete the following requirements from the lessors perspective. Assume that the lessor classies the equipment as inventory prior to the lease arrangement.

Hint: Leased equipments carrying value does not equal its fair value at lease commencement.

1. Determine the lease receivable balance at the lease commencement.