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 14%.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 Rexon’s 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. XChart of Accounts CHART OF ACCOUNTSRexon CompanyGeneral Ledger ASSETS111Cash121Accounts Receivable122Lease Receivable123Equipment Leased to Others141Inventory152Prepaid Insurance LIABILITIES211Accounts Payable231Salaries Payable250Unearned Interest261Income Taxes Payable EQUITY311Common Stock331Retained Earnings REVENUE411Sales Revenue433Interest Income EXPENSES500Cost of Goods Sold511Insurance Expense512Utilities Expense521Salaries Expense532Bad Debt Expense540Interest Expense559Miscellaneous Expenses910Income Tax Expense XNext Level 1. Assuming that the lease is a sales-type lease from Rexon’s point of view, calculate the amount of the equal rental receipts.Additional Instruction XAnalysis 2. Prepare a table summarizing the lease receipts and interest income earned by Rexon.Additional Instructions Rexon CompanySummary of Lease Payments Received and Interest Income Earned1DateAnnual Lease Payment ReceivedInterest Income at 14% on Net InvestmentReduction of Lease ReceivableLease Receivable2January 1, 2019 3December 31, 2019 4December 31, 2020 5December 31, 2021 6December 31, 2022 7December 31, 2023 8December 31, 2024 9December 31, 2025 10December 31, 2026 XGeneral Journal 3a. Prepare the journal entries for 2019.General Journal InstructionsPAGE 2019 GENERAL JOURNAL DATEACCOUNT TITLEPOST. REF.DEBITCREDIT1 2 3 4 5 6 7 3b. Prepare the journal entries for 2020.

calculation of annual rentals Desired Rate of return = 10% Lease Term= 8 years Salvage value = 0…

Answered: ncancelable and requires equal rental…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 2E: Lessee Accounting with Payments Made at Beginning of Year Adden Company signs a lease agreement...

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Question

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 14%.
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 Rexon’s 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.

Chart of Accounts

CHART OF ACCOUNTS

Rexon Company

General Ledger

	ASSETS
111	Cash
121	Accounts Receivable
122	Lease Receivable
123	Equipment Leased to Others
141	Inventory
152	Prepaid Insurance

	LIABILITIES
211	Accounts Payable
231	Salaries Payable
250	Unearned Interest
261	Income Taxes Payable

	EQUITY
311	Common Stock
331	Retained Earnings

	REVENUE
411	Sales Revenue
433	Interest Income

	EXPENSES
500	Cost of Goods Sold
511	Insurance Expense
512	Utilities Expense
521	Salaries Expense
532	Bad Debt Expense
540	Interest Expense
559	Miscellaneous Expenses
910	Income Tax Expense

Next Level

1. Assuming that the lease is a sales-type lease from Rexon’s point of view, calculate the amount of the equal rental receipts.

Additional Instruction

Analysis

2. Prepare a table summarizing the lease receipts and interest income earned by Rexon.

Additional Instructions

Rexon Company

Summary of Lease Payments Received and Interest Income Earned

1	Date	Annual Lease Payment Received	Interest Income at 14% on Net Investment	Reduction of Lease Receivable	Lease Receivable
2	January 1, 2019
3	December 31, 2019
4	December 31, 2020
5	December 31, 2021
6	December 31, 2022
7	December 31, 2023
8	December 31, 2024
9	December 31, 2025
10	December 31, 2026

General Journal

3a. Prepare the journal entries for 2019.

General Journal Instructions

PAGE 2019

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7

3b. Prepare the journal entries for 2020.

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ncancelable 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.