Question

Sheridan Leasing Company leases a new machine to Sharrer Corporation. The machine has a cost of $65,000 and fair value of $88,000. Under the 3-year, non-cancelable contract, Sharrer will receive title to the machine at the end of the lease. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2017. Sheridan expects to earn an 8% return on its investment, and this implicit rate is known by Sharrer. The annual rentals are payable on each December 31, beginning December 31, 2017.

Prepare the journal entry at commencement of the lease for Sheridan. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
1/1/17

Answer 1

Journal entry at the commencement of the lease:

Date	Account Titles and Explanation	Debit	Credit
1/1/17	Lease Receivable	$88,000
	Cost of Goods Sold	$65,000
	Sales Revenue		$88,000
	Inventory		$65,000