Question

Shamrock Leasing Company signs a lease agreement on January 1, 2017, to lease electronic equipment to Pharoah Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement:

1. Pharoah has the option to purchase the equipment for $17,500 upon termination of the lease. It is not reasonably certain that Pharoah will exercise this option.

2. The equipment has a cost of $150,000 and fair value of $199,000 to Shamrock Leasing. The useful economic life is 2 years, with an unguaranteed residual value of $17,500.

3. Shamrock Leasing desires to earn a return of 5% on its investment.

4. Collectibility of the payments by Shamrock Leasing is probable.

Assuming that Pharoah exercises its option to purchase the equipment on December 31, 2018, prepare the journal entry to record the sale on Shamrock Leasing’s books.

Answer 1

Date	General Journal	Debit	Credit
31/12/2018	Cash	$17,500
	Lease receivable		$17,500
	(To record purchase of equipment on termination of lease)