SawPro Company, owned and operated by Heather Moore, opened forbusiness in 2015. The company sells a single model of commercialgrade chain saws that it purchases from the manufacturer. Heather’scustomers, primarily businesses offering landscaping andtree-services, purchase saws on account, with payment typically duewithin thirty-days. Â
The following transactions occurred during the calendar yearending December 31, 2018:
- Acquired equipment that automated sharpening chain saw blades.Instead of paying cash, Heather signed an agreement with a leasefinancing company. The equipment was delivered, installed, andready for service on March 1, 2018. Terms of the lease requiretwenty-four equal monthly payments of $270, with the first paymentdue at signing on March 1st. The annual rate is 4.75 percent.Heather made all payments on the dates required. The fair value ofthe equipment is $6,500 with an expected service life of thirtymonths. Heather has the option to purchase the equipment for $250at the end of the lease term; she expects to exercise that option.(Note: use the old rule percent’s to determine whether the lease isfinancing or operating).
Post a journal entry of this transaction!
