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17 July, 00:20

On January 1, 2018, Calloway Company leased a machine to Zone Corporation. The lease qualifies as a sales-type lease. Calloway paid $240,000 for the machine and is leasing it to Zone for $39,000 per year, an amount that will return 9% to Calloway. The present value of the lease payments is $240,000. The lease payments are due each January 1, beginning in 2018. What is the appropriate interest entry on December 31, 2018?

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  1. 17 July, 00:48
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    Given that,

    Calloway paid for the machine = $240,000

    Machine leasing to zone = $39,000 per year

    Rate of Return = 9%

    Present value of the lease payments = $240,000

    Therefore, the interest entry on December 31, 2018 is as follows:

    Interest receivable A/c Dr. $18,090

    To interest revenue $18,090

    (To record interest on December 31, 2018)

    Workings:

    Interest = [$240,000 - $39,000] * 9%

    = $18,090
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