Problem 21A-1 a-c The following facts pertain to a non-cancelable lease agreemen

Question

Problem 21A-1 a-c

The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Windsor Company, a lessee.

.he asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment.

WINDSOR COMPANY (Lessee)

Date

Annual Lease

Interest on

Reduction of Lease

Lease Liability

Commencement date January 1, 2017 Annual lease payment due at the beginning of
   each year, beginning with January 1, 2017 $119,345 Residual value of equipment at end of lease term,
   guaranteed by the lessee $50,000 Expected residual value of equipment at end of lease term $45,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, 2017 $642,000 Lessor’s implicit rate 7 % Lessee’s incremental borrowing rate 7 %

Explanation / Answer

Windsor Company Lessee Lease Amortization schedule Date Annual lease payment plus GRV Interest on Liability Reduction on lease liability Lease Liability (a) (b) = previous year lease liability X 7% (c) = (a) - (b) Previous year balance - (c) 1/1/2017 $       6,42,000 1/1/2017 $ 1,19,345 $                    -   $ 1,19,345.00 $ 5,22,655.00 1/1/2018 $ 1,19,345 $     36,585.85 $    82,759.15 $ 4,39,895.85 1/1/2019 $ 1,19,345 $     30,792.71 $    88,552.29 $ 3,51,343.56 1/1/2020 $ 1,19,345 $     24,594.05 $    94,750.95 $ 2,56,592.61 1/1/2021 $ 1,19,345 $     17,961.48 $ 1,01,383.52 $ 1,55,209.09 1/1/2022 $ 1,19,345 $     10,864.64 $ 1,08,480.36 $     46,728.73 12/31/2022 $     50,000 $       3,271.01 $    46,728.73 $                    -   Total $ 7,66,070 $       1,24,070 $       6,42,000 Workings: 12/31/2022 Residual value given = $50,000

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