Reference no: EM132891996

Problem - Lessor Accounting with Unguaranteed Residual Value - Edom Company, the lessor, enters into a lease with Davis Company to lease equipment to Davis beginning January 1, 2019. The lease terms, provisions, and related events are as follows:

1. The lease term is 5 years. The lease is noncancelable and requires annual rental receipts of $100,000 to be made in advance at the beginning of each year.

2. The equipment costs $313,000. The equipment has an estimated life of 6 years and, at the end of the lease term, has an unguaranteed residual value of $20,000 accruing to the benefit of Edom.

3. Davis agrees to pay all executory costs directly to a third party.

4. The interest rate implicit in the lease is 14%.

5. The initial direct costs are insignificant and assumed to be zero. 6. It is probable that Edom will collect the lease payments.

Required -

1. Next Level Assuming that the lease is a sales-type lease from Edom's point of view, calculate the selling price.

2. Prepare a table summarizing the lease receipts and interest income earned by Edom.

3. Prepare a table showing the accretion of the unguaranteed residual asset.

4. Prepare journal entries for Edom, the lessor, for the years 2019 and 2020.