On January 1, 2018, Sans Serif Publishers leased printingequipment from First Lease Corp. First LeaseCorp purchased theequipment from Compudec Corporation at a cost of $479,079.
The lease agreement specifies six annual payments of $92,931beginning 1/1/18, the beginning of the lease, and at December 31from 2018 through 2022. On December 31, 2023, at the end of the 6year lease, and at the end of the six-year lease term, theequipment is expected to be worth $75,000, and San Serif has theoption to purchase it for $60,000 on that date. The residual valueafter 7 years is zero. First LeaseCorp routinely acquireselectronic equipment for lease to other firms. The interest rate inthese financing arrangements is 10%.Ă‚Â Ă‚Â
Exercise of Purchase Option (12/31/23)
Sans Serif Publishers (Lessee) Dr. Interest Expense (10% *$54,542) $5,458
Dr. Lease Payable (difference) $54,542Ă‚Â Ă‚Â
Cr. Cash $60,000
CompuDec Corporation (Lessor)
Dr. Cash (exercise price) $60,000
Cr. Lease Receivable (account balance) $54,542
Cr. Interest revenue (10% * outstanding balance) $5,458
($54,542 is the balance of lease payable after all periodiclease payments have been made)
Since the lessee takes the BPO at the end of the lease, fromthe lessor's point of view, how come the journal doesn't have adebit entry saying \"cash $60,000\" and the lessor having a creditjournal entry saying \"equipment $60,000). Thisquestion comes from page 859 and 860 illustrations 15-14 and 15-14Ain the Intermediate Accounting 9th edition by the authorsSpiceland, Nelson, and Thomas.
