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Rexon Company leases non-specialized equipment to Ten-Care Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1.The lease term
Rexon Company leases non-specialized equipment to Ten-Care Company beginning January 1, 2019. 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 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.The equipment has a fair value of $500,000.4.Ten-Care agrees to pay all executory costs directly to a third party.5.The lease contains no renewal or bargain purchase option.6.The interest rate implicit in the lease is 10%.7.The initial direct costs are insignificant and assumed to be zero.8.It is probable that Rexon will collect the lease payments plus any amount necessary to satisfy a residual value guarantee.Required:
1.Next Level Assuming that the lease is a sales-type lease from Rexons point of view, calculate the amount of the equal rental receipts.2.Prepare a table summarizing the lease receipts and interest income earned by Rexon.3.Prepare journal entries for Rexon for the years 2019 and 2020.
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