Assume that IBM leased equipment that was carried at a cost of $150,000 to Disney company. The term of the lease is 6 years beginning January 1, 2018, with equal rental payments of $30,677 at the beginning of each year. All executory costs are paid by Disney directly to third parties. THe fair value of the equipment at the inception of the lease $150,000. The equipment has a useful life of 6 years with no salvage value. The lease has an implicit interest rate of 9%, no bargain purchase option, and no transfer of title. Collectibility is reasonably assured with no additional cost to be incurred by IBM.
A. Prepare IBM (Lessor) January 1, 2018, journal entries at the inception of the lease.
B. Prepare IBM's December 31, 2018, entry to record interest.