Manufacturers Southern leased high-tech electronic equipment from Edison Leasing
ID: 2395032 • Letter: M
Question
Manufacturers Southern leased high-tech electronic equipment from Edison Leasing on January 1, 2018. Edison purchased the equipment from International Machines at a cost of $127,650. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriete factor(s) from the tables provided.) Related Information: Lease term Quarterly rental payments Economic life of asset Fair value of asset Implicit interest rate (Also lessee's incremental borrowing rate) 2 years (8 quarterly periods) $16,800 at the beginning of each period 2 years $127,650 6% es Required: Prepare a lease amortization schedule and ap January 1, 2019. Depreciation is recorde propriate entries for Manufacturers Southern from the beginning of the lease through d at the end of each fiscal year (December 31) on a straight-line basis. Complete this question by entering your answers in the tabs below. Amort Schedule General Journal Rerord the annronriate ontries fnr M nnfarturare Snuthern frnm th hea in ni na nf the lease thrnnnh lan"arv 1 201 a Snthern here to searchExplanation / Answer
Present Value of Minimum Lease Payments:
($16,800 x 7.59821*) = $127,650
lease present
payments value
* present value of an annuity due of $1: n=8, i=1.5%
[i = 1.5% (6% ÷ 4) because the lease
calls for quarterly payments]
Lease Amortization Schedule
Lease Effective Decrease Outstanding
Payments Interest in Balance Balance
1.5% x Outstanding Balance
127,650
1 16,800 16,800 110,850
2 16,800 .015 (110,850) = 1,663 15,137 95,713
3 16,800 .015 (95,713) = 1,436 15,364 80,349
4 16,800 .015 (80,349) = 1,205 15,595 64,754
5 16,800 .015 (64,754) = 971 15,829 48,925
6 16,800 .015 (48,925) = 734 16,066 32,859
7 16,800 .015 (32,859) = 493 16,307 16,552
8 16,800 .015 (16,552) = 248* 16,552 0
134,400 6,750 127,650
* adjusted for rounding of other numbers in the schedule
January 1, 2018
Leased equipment (calculated above)......................... 127,650
Lease payable (calculated above)......................................... 127,650
Lease payable ......................................................... 16,800
Cash (lease payment).......................................................... 16,800
April 1, 2018
Interest expense (1.5% x [$127,650 – 16,800])........... ......... 1,663
Lease payable (difference).......................................... 15,137
Cash (lease payment).......................................................... 16,800
July 1, 2018
Interest expense (1.5% x $95,713: from schedule)..... ......... 1,436
Lease payable (difference).......................................... 15,364
Cash (lease payment).......................................................... 16,800
October 1, 2018
Interest expense (1.5% x $80,349: from schedule)..... ......... 1,205
Lease payable (difference).......................................... 15,595
Cash (lease payment).......................................................... 16,800
December 31, 2018
Interest expense (1.5% x $64,754: from schedule)..... ............ 971
Interest payable .............................................................. 971
Depreciation expense ($127,650 ÷ 2 years).............. ....... 63,825
Accumulated depreciation............................................... 63,825
January 1, 2019
Interest payable (from adjusting entry)....................... ............ 971
Lease payable (difference).......................................... 15,829
Cash (lease payment).......................................................... 16,800
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