Question

Blossom Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2020. The lease is for an 8-year period and requires equal annual payments of $32,207 at the beginning of each year. The first payment is received on January 1, 2020. Blossom had purchased the machine during 2016 for $146,000. Collectibility of lease payments by Blossom is probable. Blossom set the annual rental to ensure a 6% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Blossom at the termination of the lease.

Compute the amount of the lease receivable.

Prepare all necessary journal entries for Blossom for 2020.

Suppose the collectibility of the lease payments was not probable for Blossom. Prepare the necessary journal entry for the company in 2020.

Suppose at the end of the lease term, Blossom receives the asset and determines that it actually has a fair value of $1,470 instead of the anticipated residual value of $0. Record the entry to recognize the receipt of the asset for Blossom at the end of the lease term.

Answer 1

Answer:

Explanation:

Check the attached file for well formatted answer

Amount of the lease receivable = $211,999

Journal entries for Blossom for 2020 are as follows :-

Date Account Titles and Explanation Debit Credit

1/1/20 Lease receivable A/c Dr. $211,999  

Cost of goods sold A/c Dr. $146,000  

To Sales A/c  $211,999

To Inventory A/c  $146,000

(To record the lease)  

Cash A/c Dr. $32,207  

To Lease receivable A/c  $32,207

(To record the first lease payment)  

12/31/20 Interest receivable A/c Dr. $10787.52  

To Interest revenue A/c

[($211,999 - $32,207) × 6% rate]

$10,787.52

(To record interest receivable on the amount after first annual payments)  

1/1/2020 Cash A/c Dr. $32,207  

To Deposit Liability A/c  $32,207

( To record the collectibility of the lease payments was not probable for Blossom)

1/1/2020 Inventory A/c Dr. $1,470  

To Gain on Lease A/c  $1,470