Wadkins Company, a machinery dealer, leased a machine to Romero
Corporation on January 1, 2012. The lease is for an 8-year period and
requires equal annual payments of $38,514 at the beginning of each year.
The first payment is received on January 1, 2012. Wadkins had purchased
the machine during 2011 for $170,000. Collectibility of lease payments
is reasonably predictable, and no important uncertainties surround the
amount of costs yet to be incurred by Wadkins. Wadkins set the annual
rental to ensure an 11% rate of return. The machine has an economic life
of 10 years with no residual value and reverts to Wadkins at the
termination of the lease.
Required:
(a) Compute the amount of the lease receivable. (Round your answer to the nearest dollar eg 58,971.)
(b) Prepare all necessary journal entries for Wadkins for 2012.