Reference no: EM132663824
Question - Planter Company, the lessor, agrees to lease equipment to Milson Company, the lessee, beginning January 1, 2016. The lease terms, provisions, and related events are as follows:
The lease is noncancelable and has a term of 8 years.
The annual rentals are $32,000, payable at the end of each year.
Milson agrees to pay all executory costs.
The interest rate implicit in the lease is 14%.
The cost of the equipment to the lessor is $110,000.
The lessor incurs no material initial direct costs.
The collectability of the rentals is reasonably assured, and there are no important uncertainties surrounding the amount of un-reimbursable costs yet to be incurred by the lessor.
The lessor estimates that the fair value at the end of the lease term will be $20,000 and that the economic life of the equipment is 9 years.
Required -
1. Calculate the selling price implied by the lease and show a table summarizing the lease receipts and interest revenue earned by the lessor for this sales-type lease.
2. Next Level State why this is a sales-type lease.
3. How do you create journal entries for Planter for the years 2016, 2017, and 2019.
4. How do you create a partial balance sheets for Planter for December 31, 2016, and December 31, 2017? How should the accounts be disclosed?