Answers
Answer:
1.Determination of the $ 17,000 quarterly rental payments:
Use the present value factor 7.47199 (Present Value of annuity of $ 1 for 2 years 4 quarterly periods in one year at 8% rate) 2% for every quarter period.
Present Value of Lease Payments = Lease Payment * PV Factor Value
$ 127,024 = $ 17,000 * 7.47199
Or, 17,000 = $ 127,024 / 7.47199
2. Journalize the lease transactions on January 1,2021 in the books of lessor, International Machines
| Date | Account Title & Explanation | Post Ref. | Debit ($) | Credit ($) |
| jan 1,2021 | Lease Receivable | 127,024 | ||
| Cost of Goods Sold | 105,000 | |||
| Sales Revenue | 127,024 | |||
| Inventory Equipment | 105,000 | |||
| (To record lease inception) |
Receipt of Lease Payment:
| Date | Account Title & Explanation | Post Ref. | Debit ($) | Credit ($) |
| jan 1,2021 | Cash | 17,000 | ||
| Lease Receivable | 17,000 | |||
| (To record the rental received) |
Receipt of Second Lease Payment:
| Date | Account Title & Explanation | Post Ref. | Debit ($) | Credit ($) |
| April 1,2021 | Cash | 17,000 | ||
| Lease Receivable (17,000 - 2,200) | 14,800 | |||
| Interest Revenue (127,024 - 17,000)* 8% * 1/4 | 2,200 | |||
| (To record the rental received) |
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