Homework Answers
a. Finance or operating lease
At the inception of the lease, the present value of the minimum lease payment is $84,444 (3.992 * $20,472 + $4000 * 0.680) which covers more than 90% of the Fair value ($91,000) of the lease asset. Thus it is a finance lease.
b. Journal entries in the books of lessor
| Journal entry posted at the start of the lease contract: | ||
| Account | Debit | Credit |
| Lease Receivable | $84,444 | |
| Asset | $84,444 | |
| Journal entry posted at the time of first payment : | ||
| Account | Debit | Credit |
| Cash | $20,427 | |
| Lease Receivable (20,427 - 1,638) | $18,789 | |
| Finance Charge (20,427 * 8%) | $1,638 | |
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information here may be needed
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