Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a 5-year, noncancelable, sales-type lease on January 1, 2019, for equipment that cost Lessor $375,000 (useful life is 5 years). The fair value of the equipment is $400,000. Lessor expects a 12% return on the cost of the asset over the 5-year period of the lease. The equipment will have an estimated unguaranteed residual value of $20,000 at the end of the fifth year of the lease. The lease provisions require 5 equal annual amounts, payable each January 1, beginning with January 1, 2019. Lessee pays all excutory costs directly to a third party. The equipment reverts to the lessor at the termination of the lease. Assume there are no initial direct costs, and the lessor expects to be able to collect all lease payments. Required: 1. Show how Lessor should compute the annual rental amounts. 2. Prepare a table summarizing the lease and interest receipts that would be suitable for Lessor. 3. Prepare a table showing the accretion of the unguaranteed residual asset. 4. Prepare the journal entries for Lessor for the years 2019, 2020, and 2021. 3 - x 11 A B P20-6 fx C D E F G H J K I Name: 1. Enter the appropriate amounts in the green-shaded cells. An asterisk () will appear before incorrect amounts entered in the answer cells. Fair value of equipment Less: PV of residual value Lease Receivable Divided by: PV factor for 5 receipts in advance at 12% Annual payment amount 15 3 2. Complete the schedule below by entering the appropriate amounts in the green-shaded cells. An asterisk will appear before incorrect amounts entered in the answer cells. Summary of Lease Payments and Interest Receipts Interest Annual Lease Income at 12% Payments on Lease Lease Date Received Receivable Receivable Jan. 1, 2019 Jan. 1, 2019 Dec 31, 2019 Jan 1, 2020 Dec 31, 2020 Jan. 1, 2021 Dec 31, 2021 Jan. 1, 2022 Dec 31, 2022 Jan 1, 2023 33 3. Complete the schedule below by entering the appropriate amounts in the green-shaded cells. 34 An asterisk (*) will appear before incorrect amounts entered in the answer cells. A running balance will be auto-calculated for you. Accretion Schedule for Unguaranteed Residual Asset Accretion/ Unguaranteed Interest Residual Date Income Asset Balance Jan 1, 2019 Dec 31, 2019 Dec 31, 2020 Dec 31, 2021 AP20-6 19,980 48 4. Complete the journal entries by entering the appropriate account titles and amounts in 49 the green-shaded cells. An asterisk (*) will appear before incorrect amounts entered in 50 the answer cells. Account titles will not be graded. 2019 Jan. 1 Lease Receivable Sales Revenue 1 Unguaranteed Residual Asset Dec. 31 Lease Receivable TO 31 Unguaranteed Residual Asset 2020 Jan. 1 Dec. 31 Lease Receivable 31 Unguaranteed Residual Asset 2021 Jan 1 Dec. 31 Lease Receivable 31 Unguaranteed Residual Asset P20-6 - Rer