Question

Geiberger Corporation manufactures replicators. On January 1, 2017, it leased to Althaus Company a replicator that had cost \(110,000 to manufacture. The lease agreement covers the 5-year useful life of the replicator and requires 5 equal annual rentals of \)40,800 payable each January 1, beginning January 1, 2017. An interest rate of 12% is implicit in the lease agreement. Collectibility of the rentals is reasonably assured, and there are no important uncertainties concerning costs. Prepare Geiberger’s January 1, 2017, journal entries.

Short answer

Lease Receivable is $164,724

Step-by-step solution

Meaning of Lease

A lawful bilateral agreement that gives the lessee the right to use the property or equipment is called a lease. The lessee has to pay lease liability according to the lease agreement made between the lessor and lessee.

Preparing Journal Entries

Date	Particular	Debit ($)	Credit ($)
Jan.1, 2017	Lease Receivable	164,724
	Sales Revenue		164,724

Working Notes:-

Calculation of Lease Receivable

$$\begin{gathered} Leasereceivable=Annualrentals\times Presentvalue \\ =\$40,800\times 4.03735 \\ =\$164,724 \end{gathered}$$

Note:Present value of an annuity due of 1 for 5 periods at 12%.

Date	Particular	Debit ($)	Credit ($)
Jan.1, 2017	Cost of Goods Sold	110,000
	Inventory		110,000
Jan.1, 2017	Cash	40,800
	Lease Receivable		40,800