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    Recording the Lease and Entry to Record Interest Income

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    A. Assume the balance in the lease payable account is now $75,000 after amortizing the final $95,000 payment on the $625,000 capital lease in question 1. If the actual residual value and the guaranteed residual value are the same, record the return of the guaranteed residual value to the lessor by the lessee at the end of the lease term. Base answers on amounts given.

    b. Find the annual payment on an 8%, 12 year, $56,730 capital lease. Record the lease, from the lessee's point of view at its inception.

    c. Probe Manufacturing leased an asset with a fair market value of $145,000 to Detection Devices. Detection will pay Probe $25,000 annually, in advance, for the next 10 years. If Probe earned a $32,000 gross profit and 12% rate of return on the lease to Detection, prepare (1) the entry to record Probe's lease to Detection, and (2) the entry to record the interest income Probe earned on its lease to Detection in year 2.

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    Solution Summary

    The solution finds the annual payment, and records the lease and prepares the entry to record the lease to detection and the interest income.