Reference no: EM132524222

Question - Winston manufactures an X-ray machine with an estimated life of 12 years and leases it to Urica Medical Center for a period of 10 years. The normal selling price of the machine is $495,678, and its unguaranteed residual value at the end of the non-cancelable lease term is estimated to be $15,000. The hospital will pay rents of $60,000 at the beginning of each year. Winston incurred costs of $300,000 in manufacturing the machine and $14,000 in legal fees directly related to the signing of the lease. Winston has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 5%.

Instructions -

a. Discuss the nature of this lease in relation to the lessor and compute the amount of each of the following items.

1. Lease receivable at commencement of the lease.

2. Sales price.

3. Cost of sales.

b. Prepare 10-year lease amortization schedule for Winston, the lessor.

c. Prepare all of the lessor's journal entries for the first year.