Stockton Enterprises Signed a 4-Year Capital Lease for a Computer

question 25

Essay

Stockton Enterprises signed a 4-year capital lease for a computer on June 30,2010.The lease calls for $5,000 down,and four annual payments of $14,196 beginning on June 30,2011.Stockton has a June 30 year end and uses a 10% interest rate for all calculations relative to the lease.Prepare the necessary journal entries to record the signing of the lease on June 30,2010 and the first lease payment on June 30,2011.Show how the lease would appear on the June 30,2011 balance sheet of Stockton Enterprises.

---

Definitions:

Cash Collections

The process of gathering all payments or receivables from customers over a specific period.

Accounts Receivable

Money owed to a business by its customers for products or services that have been delivered or used but not yet paid for.

Cost of Goods Sold

The direct costs attributable to the production of the goods sold in a company, including material and labor costs.

Collection Period

The average number of days it takes a company to collect payments from its credit sales, reflecting the efficiency of its credit and collection policies.