(Lessor Entries; Sales-Type Lease) Bench Inc., an equipment manufacturer, leased a machine to Unicycle Company on January 1, 2014. The lease is for a 6-year period and requires equal annual payments of $41,747 at the beginning of each year. The first payment is received on January 1, 2014. Bench had built the machine during 2013 for a total cost of $160,000. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by Bench. Bench set the annual rental to ensure a 10% rate of return. The machine has an economic life of 8 years with no residual value and reverts to Bench at the termination of the lease.
Instructions
(a) Compute the amount of the lease receivable.
(b) Prepare all necessary journal entries for Bench for 2014 and 2015.