Wildhorse Corporation, which uses ASPE, manufactures replicators. On May 29, 2020, it leased to Bramble Limited a replicator that cost $267,000 to manufacture and usually sells for $421,000. The lease agreement covers the replicator's 8-year useful life and requires eight equal annual rentals of $72,394 each, beginning May 29, 2020. The equipment reverts to Wildhorse at the end of the lease, at which time it is expected that the replicator will have a residual value of $45,100, which is not guaranteed by Bramble, the lessee. An interest rate of 12% is implicit in the lease agreement. Collectibility of the rentals is reasonably assured, and there are no important uncertainties concerning costs.

Date Account Titles and Explanation Debit Credit May 29 Lease Receivable Cost of Goods Sold 267,000 Unearned Interest Income Sales Revenue Inventory 267,000 (To record inception of lease.) May 29 Cash 72,394 Lease Receivable 72,394 (Collection of first lease payment.)