2. Accounting
3. edom company the lessor enters into a lease with davis...

# Question: edom company the lessor enters into a lease with davis...

###### Question details

Edom Company, the lessor, enters into a lease with Davis Company to lease equipment to Davis beginning January 1, 2016. The lease terms, provisions, and related events are as follows:

 1 The lease term is 5 years. The lease is noncancelable and requires annual rental receipts of $100,000 to be made in advance at the beginning of each year. 2 The equipment costs$313,000. The equipment has an estimated life of 6 years and, at the end of the lease term, has an unguaranteed residual value of \$20,000 accruing to the benefit of Edom. 3 Davis agrees to pay all executory costs. 4 The interest rate implicit in the lease is 14%. 5 The initial direct costs are insignificant and assumed to be zero. 6 The collectibility of the rentals is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor.

Required:

 1 Next Level Determine if the lease is a sales-type or direct financing lease from Edom’s point of view (calculate the selling price and assume that this is also the fair value). 2 Prepare a table summarizing the lease receipts and interest revenue earned by the lessor. 3 Prepare journal entries for Edom, the lessor, for the years 2016 and 2017.