Business, 17.12.2019 03:31 krystalhurst97

Castle leasing company signs a lease agreement on january 1, 2014 to lease electronic equipment to jan way company. the term of teh nonconcealable lease is 2 years and payments are required at the end of each year. the following information relates to the agreement:

1. jan way 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 $160,000 to castle leasing company. the useful economic life is 2 years, with a salvage value of $16,000.

3.jan way company is required to pay $5000 each year to the lessor for executory costs.

4. castle leasing company desires to earn a return of 10% on its investment.

5. collectibility of the payments is reasonably predictible, and there are no important uncertianties surrounding the costs yet to be incurred by the lessor.

directions:

a) prepare the journal entries on the books of castle leasing to reflect the payments received under the ease and to recognize income for the years 2014 and 2015:

1/1/14

12/31/14

12/31/15

b) assuming that jan way company exercises its option to purchase the equipment on december 31, 2015, prepare the journal entry to reflect the sale on castle's books.

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