Answer:
Fair value $238,500
Less: PV of residual value <u>$17,687 </u> (19500*0.90703)
PV of lease payment <u>$220,813 </u>
<u />
Annual lease = 220813/1.85941
Annual lease = $118,754
Date Account titles and Explanation Debit Credit
1/1/17 Lease receivables $238,500
Cost of goods sold $172,313
Sales $220,813
Inventory $190,000
(To record the lease)
12/31/17 Cash $118,754
Lease receivables $106,829
Interest revenue(238,500*5%) $11,925
(To record the receipts of lease installments)
12/31/18 Cash $118,754
Lease receivables $112,170
Interest revenue(238,500-106829*5%) $6,584
(To record the receipts of lease installments)
12/31/18 Cash $19,500
Lease receivables $19,500
(To record sales of equipment at the end of the lease)
