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Krauss leasing company signs a lease agreement on january 1

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Krauss Leasing Company signs a lease agreement on January 1, 2011, to lease electronic equipment to Stewart Company. The term of the noncancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement:

  1. Stewart Company has the option to purchase the equipment for $16,000 upon the termination of the lease.
  2. The equipment has a cost and fair value of $240,000 to Krauss Leasing Company. The useful economic life is 2 years, with a salvage value of $16,000.
  3. Stewart Company is required to pay $7,000 each year to the lessor for executory costs.
  4. Krauss Leasing Company desires to earn a return of 10% on its investment.
  5. Collectibility of the payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor.

Instructions: Prepare the journal entries on the books of Krauss Leasing to reflect the payments received under the lease and to recognize income for the years 2011 and 2012.

Reference no: EM13596774

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