[wissam]

In the Becker book the first entry to record a sales-type lease is to debit Lease Receivable, credit Unearned Revenue and Sales. The difference between the receivable and the unearned revenue is the net investment, which in the example is equal to sales. This is ok if there is no unguaranteed residual value. But if there is, the net investment (which includes the UGRV) will not be equal to the sales amount (which does not include the UGRV). What would the entry look like in that case?

Also, above the example it says “Present value = Selling price = FV”, is this always true? even if there is an UGRV.

And finally, when doing the amortization schedule what is the balance that you start with if the sales is not equal to net investment?

To be honest, I think Becker did a terrible job on this one.

[NikkiSkupnjak]

I think Becker did bad on this part too. I have this awesome handout (it was a supplement to the textbook we used) my professor gave us and I have been using that to practice.

So a Guaranteed Residual the Sales-Type entry would look like (From Becker):

DR Lease Payments Receivable 408,968.76

DR COGS 275,000.00

CR Sales Revenue 300,000.00

CR Unearned Interest 108,968.76

CR Inventory 275,000.00

If there was an Unguaranteed Residual with it, I think this is what would happen (only Sales and COGS would change):

DR Lease Payments Receivable 408,968.76

DR COGS (275,000.00 – PV Unguaranteed Residual)

CR Sales Revenue (300,000.00 – PV Unguaranteed Residual)

CR Unearned Interest 108,968.76

CR Inventory 275,000.00

FMV= PV Min Lease Pmts (including any Guaranteed Residual/BPO/less executory costs) + PV of any Unguaranteed Residual

The schedule for amortization with guaranteed or unguaranteed residual value is the same

I hope this makes sense…feel free to email me if you want that handout 🙂 nrskupnjak@uh.edu

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