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What journal entries should Heavy Co record

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Question - Heavy Co. leased equipment to Build Co. on July 1, 2019. At lease commencement, Heavy recorded the net investment in the lease for this sales-type (finance) lease at $135,000, the present value of the lease payments. The discount rate used was 7.5%. Heavy had purchased the equipment for $110,000. The first of eight annual lease payments of $20,000 was paid at lease commencement on July 1, 2019. When Build Co. makes its second payment of $20,000 on July 1, 2020, what journal entries should Heavy Co. record?

Cr. Net investment in the lease - sales-type -- $9,875

Cr. Lease revenue -- $20,000

Cr. Net investment in the lease - sales-type -- $11,375

Dr. Amortization expense -- $9,875

Dr. Cash -- 20,000

Dr. Amortization expense -- $11,375

Cr. Interest revenue -- $10,125

Cr. Interest revenue -- $8,625

Reference no: EM132966589

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