Concord Leasing Company signs a lease agreement on January 1, 2017, to lease electronic equipment to…

Concord Leasing Company signs a lease agreement on January 1,
2017, to lease electronic equipment to…

Concord Leasing Company signs a lease agreement on January 1,
2017, to lease electronic equipment to Marigold Company. The term
of the noncancelable lease is 2 years, and payments are required at
the end of each year. The following information relates to this
agreement:

1.

Marigold Company has the option to purchase the equipment for
$16,000 upon termination of the lease.

2.

The equipment has a cost and fair value of $157,000 to Concord
Leasing Company. The useful economic life is 2 years, with a
salvage value of $16,000.

3.

Marigold Company is required to pay $5,100 each year to the
lessor for executory costs.

4.

Concord Leasing Company desires to earn a return of 9% on its
investment.

5.

Collectibility of the payments is reasonably predictable, and
there are no important uncertainties surrounding the costs yet to
be incurred by the lessor.

(a) Prepare the journal entries on the books of Concord
Leasing to reflect the payments received under the lease and to
recognize income for the years 2017 and 2018.

(b) Assuming that Marigold Company exercises its option
to purchase the equipment on December 31, 2018, prepare the journal
entry to reflect the sale on Concord’s books.

Date Account Titles and Explanation Debit Credit 1/1/17 Lease Receivable 157,000 Equipment 157,000 12/31/17Cash Executory Costs Payable 5100 Lease Receivable Interest Receivable 16000 12/31/18 Cash Executory Costs Payable 5100 Lease Receivable Interest Revenue

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