Lessors and Sales-Type Capital Leases
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When a lessor enters a sales-type capital lease, several journal entries will be made to account for the transaction:
- An investment in lease asset is created on the balance sheet (NOTE: this value is greater than the reduction to inventory, so the lessorās assets on the balance sheet have grown as a result of the transaction).
- A cost of goods sold expense is calculated and recognized (NOTE: COGS is netted against sales revenue to determine gross profit or loss on the āsaleā).
- Sales revenue is recognized.
- The inventory asset account on the balance sheet is reduced.
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