Reference no: EM132828154

Arndt Inc. manufactures equipment that is sold or leased. On January 1, 2021, Arndt Inc. leased equipment with a useful life of six years to Alsup Corp. for a five-year period. Equipment costs Arndt Inc. $100,000 and its estimated value the end of the lease period is $10,000 which is not guaranteed by lessee. Fair market value of the equipment is $126,795. Equal annual payments under the lease are $32,000 (including maintenance costs of $2,000). Arndt Inc. incurred initial direct costs of $10,000 related to this lease. The first payment is due on January 1, 2021and the remaining payments are made each December 31, beginning with December 31, 2021. Implicit rate on the lease is 12%. Assume that the lease qualifies as a sales-type lease for Arndt In.

REQUIRED:

Question 1. Make the required entries for Arndt Inc (Lessor) for 2021 and 2022.

Question 2. Assume that carrying value of the lease receivable at the beginning of the fifth year of lease (1-1-2025) is $8,929 and the fair market value of the leased equipment at the end of the lease tem (12-31-2025) is $7,500. Prepare the journal entries that would be recorded by Arndt (lessor) at 12-31-205 for the receipt of the leased equipment form the lessee.