(This Problem Requires Use of PV Tables with an 11

question 2

Essay

(This problem requires use of PV tables with an 11% rate, a financial calculator or the formulas.)
Taquito Company leased equipment to Baja Company on January 1, 2014. The lease was for five years and required annual payments of $24,500 on January 1 of each year with the first payment due January 1, 2014. The equipment had a cost to Taquito of $85,000 and no expected residual value at the end of the lease term. The lease was appropriately accounted for as a sales-type lease by Taquito. Taquito used a 11% rate of return to establish the lease payments.
Required: Required:
a.Prepare all 2014 journal entries for Taquito related to the lease.
b.What amount of interest revenue would Taquito recognize for the year ended December 31, 2015?

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Definitions:

Shortage

The amount by which the quantity demanded of a product exceeds the quantity supplied at a particular (below-equilibrium) price.

Marginal Land

Land that is of poor quality for agriculture and unlikely to produce a profitable yield without significant investment in improvements.

Rents

Payments made for the use of property or land, or in economic theory, the excess returns to a factor of production over its opportunity cost.

Finite

Something that has limits or bounds; having a definite end or duration.