Reference no: EM132891991

Problem - Lessor Accounting with Receipts at End of Year - Berne Company (lessor) enters into a lease with Fox Company to lease equipment to Fox beginning January 1, 2019. The lease terms, provisions, and related events are as follows:

1. The lease term is 4 years. The lease is noncancelable and requires annual rental payments of $50,000 to be made at the end of each year.

2. The equipment costs $130,000. The equipment has an estimated life of 4 years and an estimated residual value at the end of the lease term of zero.

3. Fox agrees to pay all executory costs directly to a third party.

4. The interest rate implicit in the lease is 12%.

5. The initial direct costs are insignificant and assumed to be zero.

6. The collectability of the rentals is reasonably assured.

Required -

1. Assuming that the lease is a sales-type lease from Berne's point of view, calculate the selling price and assume that this is also the fair value.

2. Prepare a table summarizing the lease receipts and interest income earned by Berne.

3. Prepare journal entries for Berne, the lessor, for the years 2019 and 2020.