Question

Use the information for Indiana Jones Corporation from BE21-9. Assume that for Lost Ark Company, the lessor, collectibility is reasonably predictable, there are no important uncertainties concerning costs, and the carrying amount of the equipment is \(202,921. Prepare Lost Ark’s January 1, 2017, journal entries.

Indiana Jones Corporation enters into a 6-year lease of equipment on January 1, 2017, which requires 6 annual payments of \)40,000 each, beginning January 1, 2017. In addition, Indiana Jones guarantees the lessor a residual value of $20,000 at lease-end. The equipment has a useful life of 6 years. Prepare Indiana Jones’ January 1, 2017, journal entries assuming an interest rate of 10%.

Short answer

Lease Receivable is $202,921

Step-by-step solution

Meaning of Lessor

The lessor is the person in a lease agreement who has possession of the assets and transfers the rights to the lessee to use them on the lease. The lessee takes payment of rent for the leased property.

Preparing Journal Entries

Date	Particular	Debit ($)	Credit ($)
Jan.1, 2017	Lease Receivable	202,921
	Equipment		202,921
Jan.1, 2017	Cash	40,000
	Lease Receivable		40,000

Note: Present value of an annuity due of 1 for 6 periods at 10%

Present value of 1 for 6 periods at 10%