Question - Jefferson Financing, Inc. purchased a packing machine to lease to Puyallup Fruits. The lease qualifies as a direct financing lease and requires lease payments of $58,860 per year, payable in advance, over a ten-year period. There is no expected residual value. The fair market value of the packing machine is $330,000--the same amount paid by Jefferson to purchase the asset. The lease term begins on January 1, 2014.
Provide the journal entries required on Jefferson's books to
(1) Record the lease transaction and the first lease payment.
(2) Recognize interest revenue at the end of the first year. Jefferson uses a calendar-year accounting period.