Question - Lessor Entries, Sales-Type Lease
Wadkins 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 pay- ments of $38,514 at the beginning of each year. The first payment is received on January 1, 2011. Wadkins had purchased the machine during 2010 for $170,000. Collectibility of lease payments is reasonably pre- dictable, and no important uncertainties surround the amount of costs yet to be incurred by Wadkins. Wadkins 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 Wadkins at the termination of the lease.
Instructions -
A) Compute the amount of the lease receivable.
B) Prepare all necessary journal entries for Wadkins for 2011.