accounting-On January 2, 2013, Bentley Co. leases equipment from Harry’s Leasing Company

QUESTION

On January 2, 2013, Bentley Co. leases equipment from Harry’s Leasing Company with five equal annual payments of $120,000 each, payable beginning December 31, 2013. Bentley Co. agrees to guarantee the $20,000 residual value of the asset at the end of the lease term. Bentley’s incremental borrowing rate is 10%; however, the company knows that Harry’s implicit interest rate is 8%. What journal entry would Harry’s Leasing Company make at January 2, 2013, assuming this is a direct–financing lease? PV Annuity Due PV Ordinary Annuity PV Single Sum 8%, 5 periods 4.31213 3.99271 0.68058 10%, 5 periods 4.16986 3.79079 0.62092Lease Receivable $479,125 Loss $140,875 Equipment $620,000Lease Receivable $492,737 Equipment $492,737Lease Receivable $620,000 Equipment $620,000Lease Receivable $467,313 Equipment $467,313

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