Sales Type Lease—Lessor
Salcedo Co. leased equipment to Erickson Inc. on April 1, 2008. The lease, appropriately recorded as a sale by Salcedo, is for an 8 year period ending March 31, 2013. The first of eight equal annual payments of $175,000 (excluding executory costs) was made on
April 1, 2008. The cost of the equipment to Salcedo is $940,000. The equipment has an estimated useful life of eight years with no residual value expected. Salcedo uses straight line depreciation and takes a full year’s depreciation in the year of purchase. The cash selling price of the equipment is $1,026,900.
1. Give the entry required to record the lease on Salcedo’s books.
2. How much interest revenue will Salcedo recognize in 2008?