Reference no: EM132572506

Question - Windsor Leasing Company signs a lease agreement on January 1, 2020, to lease electronic equipment to Wildhorse Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement:

1. Wildhorse has the option to purchase the equipment for $25,500 upon termination of the lease. It is not reasonably certain that Wildhorse will exercise this option.

2. The equipment has a cost of $310,000 and fair value of $363,000 to Windsor Leasing. The useful economic life is 2 years, with a residual value of $25,500.

3. Windsor Leasing desires to earn a return of 5% on its investment.

4. Collectibility of the payments by Windsor Leasing is probable.

Required -

(1) Prepare the journal entries on the books of Windsor Leasing to reflect the payments received under the lease and to recognize income for the years 2020 and 2021.

(2) Assuming that Wildhorse exercises its option to purchase the equipment on December 31, 2021, prepare the journal entry to record the sale on Windsor's Leasings books.