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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Use the information in RE20-3. Prepare the journal entries that Richie Company (the lessor) would make in the first year of the lease assuming the lease is classified as a sales-type lease. Assume that the lessee is required to make payments on December 31 each year. Also assume that Richie had purchased the equipment at a cost of $200,000.

To determine

Prepare the journal entries in the books of Company R (Lessor).

Explanation

Lease: Lease is a contractual agreement whereby the right to use an asset for a particular period of time is provided by the owner of the asset to the user of the asset. The owner, who possesses the asset, is termed as ‘Lessor’ and user, to whom the right is transferred to, is termed as ‘Lessee’.

Prepare the journal entries in the books of Company R (Lessor):

DateAccount titles and explanationPost ref.Debit ($)Credit ($)

January 01,

2019

Lease receivable $250,000.00 
    Sales revenue  $250,000.00
 (To record the lease receivable)   
     

January 01,

2019

Cost of goods sold $200,000.00 
    Equipment leased to others  $200,000.00
 (To record the cost of goods sold)   
     
December 31, 2019Cash $65,949...

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