Reference no: EM13613797
Custom Truck Builders frequently uses long-term lease contracts to finance the sale of its trucks. On November 1, 2011, Custom Truck Builders leased to Interstate Van Lines a truck carried in the perpetual inventory records at $33,520. The terms of the lease call for Interstate Van Lines to make 36 monthly payments of $1,400 each, beginning on November 30, 2011. The present value of these payments, after considering a built-in interest charge of 1 percent per month, is equal to the regular $42,150 sales price of the truck. At the end of the 36-month lease, title to the truck will transfer to Interstate Van Lines. a-1 Prepare journal entries for 2011 in the accounts of Custom Truck Builders on November 1, to record the sale financed by the lease and the related cost of goods sold. (Debit Lease Payments Receivable for the $42,150 present value of the future lease payments.) (Omit the "tiny_mce_markerquot; sign in your response): Date General Journal Debit Credit Nov. 1 a-2 Prepare journal entries for 2011 in the accounts of Custom Truck Builders on November 30, to record receipt of the first $1,400 monthly payment. (Prepare a compound journal entry that allocates the cash receipt between interest revenue and reduction of Lease Payments Receivable. The portion of each monthly payment recognized as interest revenue is equal to 1 percent of the balance of the account Lease Payments Receivable, at the beginning of that month.) (Round all interest computations to the nearest dollar. Omit the "tiny_mce_markerquot; sign in your response): Date General Journal Debit Credit Nov. 30 a-3 Prepare journal entries for 2011 in the accounts of Custom Truck Builders on December 31, to record receipt of the second monthly payment (Round all interest computations to the nearest dollar. Omit the "tiny_mce_markerquot; sign in your response): Date General Journal Debit Credit Dec. 31 b-1 Prepare journal entries for 2011 in the accounts of Interstate Van Lines on November 1, to record acquisition of the leased truck (Omit the "tiny_mce_markerquot; sign in your response): Date General Journal Debit Credit Nov. 1 b-2 Prepare journal entries for 2011 in the accounts of Interstate Van Lines on November 30, to record the first monthly lease payment. (Determine the portion of the payment representing interest expense in a manner parallel to that described in part
a.) (Round all interest computations to the nearest dollar. Omit the "tiny_mce_markerquot; sign in your response): Date General Journal Debit Credit Nov. 30
b-3 Prepare journal entries for 2011 in the accounts of Interstate Van Lines on December 31, to record the second monthly lease payment (Round all interest computations to the nearest dollar. Omit the "tiny_mce_markerquot; sign in your response): Date General Journal Debit Credit Dec. 31
b-4 Prepare journal entries for 2011 in the accounts of Interstate Van Lines on December 31, to recognize depreciation on the leased truck through year-end. Compute depreciation expense by the straight-line method, using a 10-year service life and an estimated salvage value of $6,150 (Omit the "tiny_mce_markerquot; sign in your response): Date General Journal Debit Credit Dec. 31
c Compute the net carrying value of the leased truck in the balance sheet of Interstate Van Lines at December 31, 2011. (Omit the "tiny_mce_markerquot; sign in your response.) Net carrying value $
d. Compute the amount of Interstate Van Lines's lease payment obligation at December 31, 2011. (Omit the "tiny_mce_markerquot; sign in your response.) Lease payment obligation $