Nelson Ltd Manufactures Specialised Machinery for Both Sale and Lease

Nelson Ltd manufactures specialised machinery for both sale and lease. On 1 July
2013, Nelson leased a machine to Poggi Ltd. The machine cost Nelson Ltd
$195 000 to manufacture, and its fair value at the inception of the lease was
$212 515. The interest rate implicit in the lease is 10%, which is in line with current market rates. Under the terms of the lease, Poggi Ltd has guaranteed $25 000 of the asset's expected residual value of $37 000 at the end of the 5-year lease term. The debit to the sales revenue account in Nelson's books is:

A) $187 548
B) $195 000
C) $205 063
D) $212 515

Correct Answer:

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