Question

On January 1, 2021, Calloway Company leased a machine to Zone Corporation. The lease qualifies as a sales-type lease. Calloway paid $290,000 for the machine and is leasing it to Zone for $37,000 per year, an amount that will return 7% to Calloway. The present value of the lease payments is $290,000. The lease payments are due each January 1, beginning in 2021. What is the appropriate interest entry on December 31, 2021

Answer 1

Answer and Explanation:

The appropriate interest entry on December 31, 2021 is presented below

Interest receivable $17,710 (($290,000 - $37,000) × 0.07)

To Interest revenue $17,710

(Being interest is recorded)

Here the interest receivable is debited as it increased the assets and credited the interest revenue as it also increased the revenue