Custom Truck Builders frequently uses long-term lease contracts to finance the sale of its trucks. On November 1, 2011, Custom Truck Builders leased to Interstate Van Lines a truck carried in the perpetual inventory records at $33,520. The terms of the lease call for Interstate Van Lines to make 36 monthly payments of $1,400 each, beginning on November 30, 2011. The present value of these payments, after considering a built-in interest charge of 1 percent per month, is equal to the regular $42,150 sales price of the truck. At the end of the 36-month lease, title to the truck will transfer to Interstate Van Lines.
Prepare journal entries for 2011 in the accounts of Custom Truck Builders on November 1, to record the sale financed by the lease and the related cost of goods sold. (Debit Lease Payments Receivable for the $42,150 present value of the future lease payments.)