Question

Lessor Computations and Entries, Sales-Type Lease with Guaranteed Residual Value) Amirante Inc. manufactures an X-ray machine with an estimated life of 12 years and leases it to Chambers Medical Center for a period of 10 years. The normal selling price of the machine is \(411,324, and its guaranteed residual value at the end of the noncancelable lease term is estimated to be \)15,000. The hospital will pay rents of \(60,000 at the beginning of each year and all maintenance, insurance, and taxes. Amirante Inc. incurred costs of \)250,000 in manufacturing the machine and $14,000 in negotiating and closing the lease. Amirante Inc. has determined that the collectibility of the lease payments is reasonably predictable, that there will be no additional costs incurred, and that the implicit interest rate is 10%.

Instructions

(c) Prepare all of the lessor’s journal entries for the first year.

Short answer

The total debit and credit side of the journal is $770,456.

Step-by-step solution

Meaning of Lease receivable

Any and all rents, payments, and other amounts (including, without limitation, any sales or use taxes, supplementary rent payments, additional rent payments, rental stores, engine stores, maintenance stores, and maintenance) under or in connection with the lease) is known as a lease receivable.

Preparing journal entries (Lessors)

Date	Particular	Debit ($)	Credit ($)
Beginning of the Year	Lease Receivable	411,324
	Cost of Goods Sold	250,000
	Sales Revenue		411,324
	Inventory		250,000
	Selling Expenses	14,000
	Accounts Payable		14,000
	Cash	60,000
	Lease Receivable		60,000
End of the Year	Interest Receivable	35,132
	Interest Revenue		35,132