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Computer Geeks are leasing computer networking equipment to Romeo that costs them $700,000, this is the market price for the equipment. They didn’t produce it and are not a dealer. It is a 7 year lease with the annual payment due on July 1 & the equipment has a useful life of 9 years. The implicit interest rate is 7% and the first payment is due at the inception of the lease on July 1, 2013. No guaranteed residual value to Computer Geeks. Computer Geeks will attempt to regain the entire cost through lease payments. Romeo uses straight-line depreciation. Provide the journal entry for Computer Geeks to record the lease. What type of lease, financing type or sales-type lease for Computer Geeks? What type of lease for Romeo, capital or operating lease? Why? What is the annual lease payment? Provide the journal entry for 12/31/13 for Romeo.
Ans) First we Have to calculate Annual Lease Payment:Cost of the Equipment = $700,000, Computer Geeks will attempt to regain the entire costthrough lease Payment and have an implicit interest…
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