Edom Company, the lessor, enters into a lease with Davis Company to lease equipment to Davis beginning January 1, 2019. The lease terms, provisions, and related events are as follows:1.The lease term is 5 years. The lease is noncancelable and requires annual rental receipts of $100,000 to be made in advance at the beginning of each year.2.The equipment costs $313,000. The equipment has an estimated life of 6 years and, at the end of the lease term, has a residual value of $20,000 which is guaranteed by Davis Company (the lessee).3.Davis agrees to pay all executory costs directly to a third party.4.The interest rate implicit in the lease is 14%.5.The initial direct costs are insignificant and assumed to be zero.6.It is probable that Edom will collect the lease payments. Required:1.Next Level Assuming that the lease is a sales-type lease, calculate the selling price.2.Prepare a table summarizing the lease receipts and interest income earned by Edom.3.Prepare journal entries for Edom for the years 2019 and 2020.

Journal entries are prepared to record the financial and non-financial transactions of the business.

Answered: Edom Company, the lessor, enters into a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Edom Company, the lessor, enters into a lease with Davis Company to lease equipment to Davis beginning January 1, 2019. The lease terms, provisions, and related events are as follows:

1.	The lease term is 5 years. The lease is noncancelable and requires annual rental receipts of $100,000 to be made in advance at the beginning of each year.
2.	The equipment costs $313,000. The equipment has an estimated life of 6 years and, at the end of the lease term, has a residual value of $20,000 which is guaranteed by Davis Company (the lessee).
3.	Davis agrees to pay all executory costs directly to a third party.
4.	The interest rate implicit in the lease is 14%.
5.	The initial direct costs are insignificant and assumed to be zero.
6.	It is probable that Edom will collect the lease payments.

Required:

1.	Next Level Assuming that the lease is a sales-type lease, calculate the selling price.
2.	Prepare a table summarizing the lease receipts and interest income earned by Edom.
3.	Prepare journal entries for Edom for the years 2019 and 2020.

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