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Subject Topic: sales-type lease (Topic Closed Topic Closed) Post ReplyPost New Topic
  
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FC.CPA
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Posted: 23 Jul 2010 at 03:08 | IP Logged  

It's mind boggling.

DR: Lease receivable 300
DR: Interest receivable 108
CR: Sales revenue          ;   408,968.76???

Sales revenue is only 300,000 though.



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CPASTONE
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Posted: 23 Jul 2010 at 03:25 | IP Logged  

Where is unearned interest account getting debited? or like you said " Interest Receivable getting debited. Unearned intt account will continue to have balance, since here it is not credited, while we are crediting Earned Interest Revenue.

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CPASTONE
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Posted: 23 Jul 2010 at 03:27 | IP Logged  

Well I am kind of getting it.

I guess it should be

Dr.Cash
Cr.Lease payment receivable
Cr.Unearned Interest.

Looks ok to me. Here Unearned intt will go down.


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FC.CPA
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Posted: 23 Jul 2010 at 03:49 | IP Logged  

If you credit Unearned interest again, wouldn't that
increase the balance?

If the initial entries were;

DR: Lease payment receivable 300,000 (netting 408 and
108)
CR: Sales 300,000

then i can make sense of it. so when we receive the
payment it'll be;

DR: Cash 51,121
CR: Lease payment receivable 26,233
CR: Interest revenue 24,887

but the other way doesn't make any sense to me.

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1tryCPA
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Posted: 23 Jul 2010 at 07:49 | IP Logged  

I think that entries would be:

Cash 51,121.08

     Lease Receivable 51,121.08

Interest revenue 24,887.89

       Unearned interest revenue 24,887.89

calculated using effective interest method based on the carrying amount.

those entries reflect the fact that we already documented unearned interest revenue in the first entry, and it was correct. If we divide payment in interest and principal, we will never get rid of Unearned interest revenue by the end of the lease.

The first entry reduces our Lease Receivable account, the second re-class unearned revenue to revenue as it earned according to effective interest method.

Sales revenue should be 300,000 as in the first post

Lease R is not netted against unearned interest revenue: we should show it seperately.

Hope it helps



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