1. Lessor Entries, Sales-Type Lease Watkins Company, a machinery dealer, leased a machine to Romero Corporation on January 1, 2011. The lease is for an 8-year period and requires equal annual payments of $38,514 at the beginning of each year. The first payment is received on January 1, 2011. Watkins had purchased the machine during 2010 for $170,000. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by Watkins. Watkins set the annual rental to ensure an 11% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Watkins at the termination of the lease.
(a) Compute the amount of the lease receivable.
(b) Prepare all necessary journal entries for Watkins for 2011.