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Rexon Company leases equipment to Ten-Care Company beginning January 1, 2016. The lease terms, provisions, and related events are as follows: 1. The lease term

Rexon Company leases equipment to Ten-Care Company beginning January 1, 2016. The lease terms, provisions, and related events are as follows:

1. The lease term is 8 years. The lease is noncancelable and requires equal rental payments to be made at the end of each year.
2. The cost, and also fair value, of the equipment is $500,000. The equipment has an estimated life of 8 years and has a zero estimated value at the end of that time.
3. Ten-Care agrees to pay all executory costs.
4. The lease contains no renewal or bargain purchase option.
5. The interest rate implicit in the lease is 14%.
6. The initial direct costs are insignificant and assumed to be zero.
7. 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 Assuming that the lease is a direct financing lease from Rexons point of view, calculate the amount of the equal rental receipts.
2. Prepare a table summarizing the lease receipts and interest revenue earned by Rexon.
3. Prepare journal entries for Rexon for the years 2016 and 2017.

Assuming that the lease is a direct financing lease from Rexons point of view, calculate the amount of the equal rental receipts. Additional Instruction

Prepare a table summarizing the lease receipts and interest revenue earned by Rexon. Additional Instructions

REXON COMPANY

Lease Payments Received and Interest Revenue Earned Summary

2016 - 2023

1

Date

Annual Lease Payment Received

Interest Revenue at 14% 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

7

December 31, 2020

8

December 31, 2021

9

December 31, 2022

10

December 31, 2023

Prepare journal entries for Rexon for the years 2016 and 2017. Additional Instructions

PAGE 2016PAGE 2017

GENERAL JOURNAL

DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT

1

2

3

4

5

6

7

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