Terms of a lease agreement and related facts were: a. Incremental costs of commissions for brokering the lease and consummating the completed lease transaction incurred by the lessor were $6,652.
b. The retail cash selling price of the leased asset was $550,000.
c. Its useful life was three years with no residual value.
d. The lease term is three years and the lessor paid $550,000 to acquire the asset.
e. Annual lease payments at the beginning of each year were $200,000.
f. Lessor’s implicit rate when calculating annual rental payments was 9%.
(FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
Required:
1. Prepare the appropriate entries for the lessor to record the lease and related payments at its beginning, January 1, 2018.
2. Calculate the effective rate of interest revenue after adjusting the net investment by initial direct costs.
3. Record any entry(s) necessary at December 31, 2018, the fiscal year-end.