The following facts pertain to a noncancelable lease agreement between Mooney Le
ID: 2423548 • Letter: T
Question
The following facts pertain to a noncancelable lease agreement between Mooney Leasing Company and Rode Company, a lessee. Inception date: Annual lease payment due at the beginning of May 1, 2014 $19,687.57 $3,550.00 each year, beginning with May 1, 2014 Bargain-purchase option price at end of lease term Lease termm Economic life of leased equipment Lessor's cost Fair value of asset at May 1, 2014 Lessor's implicit rate Lessee's incremental borrowing rate 5 years 10 years $66,500.00 $81,500.00 12% 12% The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs.Explanation / Answer
A)
($19687.57 x 4.03735) + ($3550 x 0.56743) = $81500
RODE COMPANY (Lessee) Lease Amortization Schedule
Annual Lease
Interest (12%)
Reduction of
Lease
Payment Plus BPO
on Liability
Lease Liability
liability
5/1/2014
81500
5/1/2014
19,687.57
$21,227.65
60,272.35
5/1/2015
19,687.57
7,232.68
12,454.89
47,817.46
5/1/2016
19,687.57
5,738.10
13,949.47
33,867.99
5/1/2017
19,687.57
4,064.16
15,623.41
18,244.58
5/1/2018
19,687.57
2,189.35
17,498.22
746.36
4/30/2019
3,550.00
74.64
3,475.36
0.00
$101,987.85
$19,298.92
$84,229.01
5/1/04 Leased Equipment Under
Capital Leases.......................... 81500
Lease Liability .................................... 81500
Lease Liability .............................. 19687.57
Cash ...................................... 19687.57
12/31/04 Interest Expense.......................... 4821.78
Interest Payable ........................................................4821.78
($7232.68 X 8/12 = $4821.78)
Depreciation Expense................. 5433.33
Accumulated Depreciation
—Capital Leases.............. 5433.33
($81500 ÷ 10 =
($8150; $8150 X 8/12 = $5433.33)
Interest Payable........................... 4821.78
Interest Expense.................. 4821.78
Interest Expense.......................... 7,232.68
Lease Liability..............................12,454.89
Cash .............................................................. 19,687.57
Interest Expense.......................... 3825.4
Interest Payable ................... 3,825.4
($5,738.10X 8/12 =
($3,825.4)
Depreciation Expense................. 8150
Accumulated Depreciation
—Capital Leases.............. 8150
($81500 ÷ 10 years =
($8150)
A)
($19687.57 x 4.03735) + ($3550 x 0.56743) = $81500
RODE COMPANY (Lessee) Lease Amortization Schedule
Annual Lease
Interest (12%)
Reduction of
Lease
Payment Plus BPO
on Liability
Lease Liability
liability
5/1/2014
81500
5/1/2014
19,687.57
$21,227.65
60,272.35
5/1/2015
19,687.57
7,232.68
12,454.89
47,817.46
5/1/2016
19,687.57
5,738.10
13,949.47
33,867.99
5/1/2017
19,687.57
4,064.16
15,623.41
18,244.58
5/1/2018
19,687.57
2,189.35
17,498.22
746.36
4/30/2019
3,550.00
74.64
3,475.36
0.00
$101,987.85
$19,298.92
$84,229.01
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