Question

22

On January 1, 2021, Company A leased equipment from Company B. The lease agreement specifies ten annual payments of $20,000 beginning January 1, 2021, the beginning of the lease, and at each December 31, thereafter. At the end of the ten- year lease term the equipment will be returned to the lessor and is expected to have a residual value of $12,000. The estimated useful life of the equipment is twelve years. The interest rate in these financing arrangements is 10%. Company B manufactured the equipment at a cost of $100,000. Which of the following is true regarding the entries made on January 1, 2021? Company B will debit equipment for $100,000. Company B will credit sales revenue for $139,807. Company B will credit sales revenue for $135,180. Company B will debit lease receivable for $135,180.

Answer 1

Answer : Option D , company B will debit lease receivable for $1,35,180

Explanation :

Date	Accouts	Debit	credit
January 1, 2021	lease receivable	$1,35,180 {$20,000 + $20,000(1÷ 1.1)^9}
	Equipment		$1,35,180