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Compute the lease payment for the lessor

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Reference no: EM132506117

Rex Corporation (lessor) and Lee Company (lessee) agreed to a lease with the following information:

  1. Rex's carrying value of the underlying asset (inventory item) was $400,000
  2. Lease term is four years, beginning January 1, 2020. Lease payments are made each January 1, beginning January 1, 2020.
  3. Estimated useful life of the underlying asset is four years. Estimated residual value at the end of the lease is zero.
  4. Sales price of the underlying asset on January 1, 2020, was $460,000.
  5. Rex's implicit interest rate is 8% on retail price (known to Lee)
  6. Rex paid commission and legal fees in securing the lease of $5,000 on January 1, 2020.
  7. Rex expects to collect all payments from Lee.

Required:

Question a. Compute the lease payment for the lessor and the lease receivable to be capitalized by the lessor.

Question b. Provide the entries for the lessor during 2020

Reference no: EM132506117

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