Krauss Leasing Company signs a lease agreement on January 1, 2013, to lease electronic equipment to Stewart Company. The term of the noncancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement.
| 1. |
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Stewart has the option to purchase the equipment for $16,040 upon termination of the lease. |
| 2. |
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The equipment has a cost and fair value of $228,700 to Krauss Leasing Company. The useful economic life is 2 years, with a salvage value of $16,040. |
| 3. |
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Stewart Company is required to pay $6,580 each year to the lessor for executory costs. |
| 4. |
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Krauss Leasing Company desires to earn a return of 8% on its investment. |
| 5. |
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Collectibility of the payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. |
Prepare the journal entries on the books of Krauss Leasing to reflect the payments received under the lease and to recognize income for the years 2013 and 2014