Custome truck bilders frequently uses long term lease contracts to finance the sale of its trucks. on november 1 2011 custom truck builders leased to interstate van lines a truck carried in the perpetual inventory records at $33520. the terms of the lease call for interstate van lines to make 36 monthly payments of 1400 each, beginning on novemner 30 2011. the present value of these payments after considering a built in interest charge of 1 percent per month is euqal to the regular 42150 sales price of the truck. at the end of the 36 month lease title to the truck will transfer to interstate van lines.
a. prepare a jounal intries fro 2011 in the accounts of custom truck builders on
1. november 1 to record the sale financed by the lease and the related cost of good sold. debit lease payments recievalbe for the 42150 present value of the future lease payments.
2. november 30 to record receipt of the first 1400 monthly payment. prepare a compound journal entry that allocates the cash receipt between interest revenue and reduction of lease payments receivable. the portion of each monthly payment recognized as interest revenue is equal to 1 percent of the balace of the accunt lease payments receivalbe at the beginning of that month. round all interest comutations to the nearest dollar.
3. december 31 to record receipt of the second monthly payment
b prepare jounal entries for 2011 in the accunts of intersate van lines on
1. nov.1 to record acuisition of the leased truck.
2. nov 30 to record the first monthly lease payment. determine the protion of the payment representing intereset expense in a manner paralle to that described in part a.
3 dec. 31 to record the second monthly payment
4. dec 31 to recognize depreciation on the leased truck through year end. compute depreciation expense by the straight line method using a 10 year service life and an estimated salvage value of 6150
c. comput the net carrying value of the leased truck in the balace sheet of interstaae van lines at dec 31 2011
d. comupute the amount of interstae van lines lease payment obligation at december 31.