Assume that IBM leased equipment that wascarried at a cost of $182,000 to Sharon Swander Company. The termof the lease is 6 years beginning January 1, 2017, with equalrental payments of $35,685 at the beginning of each year. Allexecutory costs are paid by Swander directly to third parties. Thefair value of the equipment at the inception of the lease is$182,000. The equipment has a useful life of 6 years with nosalvage value. The lease has an implicit interest rate of 7%, nobargain-purchase option, and no transfer of title. Collectibilityis reasonably assured with no additional cost to be incurred byIBM.
Prepare IBM’s January 1, 2017, journal entries at the inceptionof the lease
Date
Account Titles & Explnation
Debit
Credit
January 1
January 1
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