Question

Suppose at the end of the lease term, Sheridan receives the asset and determines that it actually has a fair value of $1,450 instead of the anticipated residual value of $0. Record the entry to recognize the receipt of the asset for Sheridan at the end of the lease term. (

Answer 1

Asset under lease (Dr.) $1,450

Revaluation reserve (Cr.) $1,450

Step-by-step explanation:

Capital lease is a situation where the lessee has the option to buy the asset at the end of lease term. The Sheridan receives the asset when the lease term is ended. The actual fair value of asset is $1,450 higher than anticipated value. To record the increase in fair value the asset value is debited with the amount of fair value rise. The asset is recorded at fair value in the balance sheet.