Castle Leasing Company signs a lease agreement on January 1, 2014, to lease elec
ID: 2423570 • Letter: C
Question
Castle Leasing Company signs a lease agreement on January 1, 2014, to lease electronic equipment to Jan Way Company. The term of the noncancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement: 1. Jan Way has the option to purchase the equipment for $15,620 upon termination of the lease 2. The equipment has a cost and fair value of $159,100 to Castle Leasing Company. The useful economic life is 2 years, with a salvage value of $15,620 3. Jan Way Company is required to pay $4,550 each year to the lessor for executory costs. 4, Castle Leasing Company desires to earn a return of 10% on its investment 5. Collectibility of the payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessorExplanation / Answer
Present value of lease payment + present value of residual value = cost of asset
1.73554 *X + 0.82645 * 15620 = 159100
X = 84233.64
Date
Account titles and explanation
Debit
Credit
1/1/14
Lease receivable
159100
Asset
159100
Expense on lease
4550
Bank
4550
12/31/14
Bank
84233.64
Lease receivable
75810.28
Finance income
8423.364
Finance income
8423.364
Profit and loss account
8423.364
12/31/15
Bank
83289.72
Lease receivable
74960.75
Finance income
8328.972
Finance income
8328.972
Profit and loss account
8328.972
Date
Account titles and explanation
Debit
Credit
1/1/14
Lease receivable
159100
Asset
159100
Expense on lease
4550
Bank
4550
12/31/14
Bank
84233.64
Lease receivable
75810.28
Finance income
8423.364
Finance income
8423.364
Profit and loss account
8423.364
12/31/15
Bank
83289.72
Lease receivable
74960.75
Finance income
8328.972
Finance income
8328.972
Profit and loss account
8328.972
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