E21.6 (LO 3) (Lessor Entries, Sales-Type Lease with Option to Purchase) Castle LeasingCompany signs a lease agreement on January 1, 2022, to lease electronic equipment to Jan WayCompany. The term of the non-cancelable lease is 2 years, and payments are required at the end ofeach year. The following information relates to this agreement.1. Jan Way has the option to purchase the equipment for $16,000 upon termination of the lease.It is not reasonably certain that Jan Way will exercise this option.2. The equipment has a cost of $120,000 and fair value of $160,o00 to Castle Leasing. The usefuleconomic life is 2 years, with a residual value of $16,000.3. Castle Leasing desires to earn a return of 5% on its investment.4. Collectibility of the payments by Castle Leasing is probable.Instructionsa. Prepare the journal entries on the books of Castle Leasing to reflect the payments receivedunder the lease and to recognize income for the years 2022 and 2023.b. Assuming that Jan Way exercises its option to purchase the equipment on December 31, 2023,prepare the journal entry to record the sale on Castle Leasing's books.

Answered: on relates to this agreement. rchase…

on relates to this agreement. rchase the equipment for $16, at Jan Way will exercise this o 120,000 and fair value of $16 a residual value of $16,000.

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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