Sales-type lease; lessor
Response to the following problem:
M anufacturers Southern leased high-tech electronic equipment from International Machines on January 1, 2016. International Machines manufactured the equipment at a cost of $85,000.
Lease term 2 years (8 quarterly periods)
Quarterly rental payments $15,000 at the beginning of each period
Economic life of asset 2 years
Fair value of asset $112,080
Implicit interest rate 8%
(Also lessee's incremental borrowing rate)
Required:
1. Show how International Machines determined the $15,000 quarterly rental payments.
2. Prepare appropriate entries for International Machines to record the lease at its inception, January 1, 2016, and the second rental payment on April 1, 2016.