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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. | Prepare a table summarizing the lease receipts and interest revenue earned by Rexon. |
2. | Prepare journal entries for Rexon for the years 2016 and 2017. |
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