Reference no: EM132707820

Question - Tamarisk, Inc. leases a piece of equipment to Bucks Company on January 1, 2020. The contract stipulates a lease term of 5 years, with equal annual rental payments of $9,146 at the end of each year. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. The asset has a fair value of $49,000, a book value of $46,000, and a useful life of 8 years. At the end of the lease term, Tamarisk expects the residual value of the asset to be $12,000, and this amount is guaranteed by a third party. Tamarisk wants to earn a 5% return on the lease and collectibility of the lease payments is probable. Assume that the lease receivable is $49,000, deferred gross profit is $3,000, and the rate of return to amortize the net lease receivable to zero is 7.04%.

Required - Prepare Tamarisk' journal entry at the end of the first year of the lease to record the receipt of the first lease payment.