Question

Exercise 15-8 Sales-type lease with selling profit; lessor; calculate lease payments [LO15-3]

Manufacturers Southern leased high-tech electronic equipment from International Machines on January 1, 2018. International Machines manufactured the equipment at a cost of $87,000. Manufacturers Southern's fiscal year ends December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Related Information:
Lease term	2 years (8 quarterly periods)
Quarterly rental payments	$15,300 at the beginning of each period
Economic life of asset	2 years
Fair value of asset	$112,446
Implicit interest rate	10%

Required:
1. Show how International Machines determined the $15,300 quarterly lease payments.
2. Prepare appropriate entries for International Machines to record the lease at its beginning, January 1, 2018, and the second lease payment on April 1, 2018.

Answer 1