Sales-Type Lease with a Bargain Purchase Option

On January 1, the lessor company purchased a piece of equipment for $6,000 as inventory. The lessor company immediately leased the equipment under a sales-type lease agreement. The lease calls for the lessor company to receive five annual lease payments of $2,500 per year, to be received at the beginning of the year. In addition to the five annual payments of $2,500 at the beginning of each year, the lessor is to receive a bargain purchase option amount of $500 at the end of five years. The interest rate implicit in the lease is 12%.

Note: Use the net method to record lease payment receivables.

Make the journal entries necessary on the books of the lessor company to record the lease signing