Exercise 21-10 Prepare an amortization schedule that would be suitable for the l

Question

Exercise 21-10

Prepare an amortization schedule that would be suitable for the lessor for the lease term. (Round answers to 0 decimal places e.g. 58,971.)

MORGAN LEASING COMPANY (Lessor)
Lease Amortization Schedule

Date

Annual Lease Payment Plus
URV

Interest on Lease
Receivable

Recovery of Lease
Receivable

Lease Receivable

Prepare all of the journal entries for the lessor for 2014 and 2015 to record the lease agreement, the receipt of lease payments, and the recognition of income. Assume the lessor’s annual accounting period ends on December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date

Account Titles and Explanation

Debit

Credit

1/1/14

(To record the lease.)

1/1/14

(To record lease payment.)

12/31/14

1/1/15

12/31/15

Exercise 21-10

Morgan Leasing Company signs an agreement on January 1, 2014, to lease equipment to Cole Company. The following information relates to this agreement.
1. The term of the noncancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years. 2. The cost of the asset to the lessor is $242,900. The fair value of the asset at January 1, 2014, is $242,900. 3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $47,350, none of which is guaranteed. 4. Cole Company assumes direct responsibility for all executory costs. 5. The agreement requires equal annual rental payments, beginning on January 1, 2014. 6. Collectibility of the lease payments is reasonably predictable. There are no important uncertainties surrounding the amount of costs yet to be incurred by the lessor.

Explanation / Answer

Solution.

b.

c. Journal Entry

Fair market value of lease equipment        242,900.00 Present value of salvage value        (23,959.10) Amount to be recovered        218,940.90 PV factore of annuity due(12%,6year)                4.1114 Annual payment required          53,252.00 Residule value          47,350.00 PV of Future sum (12%,6year)                   0.506 PV of salvage value          23,959.10

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