9. The lessor calculates that the present value on January 1, 2013 of 12 annual

Question

9. The lessor calculates that the present value on January 1, 2013 of 12 annual payments in advance of $34,100 discounted at 10% is $255,581.58 (the $1 purchase option is ignored as immaterial).

Question

1. The following partially completed schedule will help you to organize the information for this requirement.

2. Prepare all the journal entries for Ballieu for the years 2013 and 2014. For compound entries, if an amount box does not require an entry, leave it blank. Round your answers the nearest cent.

2013 Jan 1

Record Lease

Lease Receivable

$ ?????

Sales

$ ?????

Unearned Interest: Leases

$ ?????

Cost

Cost of Asset Leased

$ ?????

Specialty Equipment (Invetory)

$ ?????

Payment

Cash

$ ?????

Lease Receivable

$ ?????

Dec 31

Interest Revenue

Unearned Interest: Leases

$ ?????

Interest Revenue: Leases

$ ?????

2014 Jan 1

Collect Payment

Cash

$ ?????

Lease Receivable

$ ?????

Dec 31

Interest Revenue

Unearned Interest: Leases

$ ?????

Interest Revenue: Leases

$ ?????

On January 1, 2013, Ballieu Company leases specialty equipment with an economic life of 12 years to Anderson Company. The lease contains the following terms and provisions: 1. The lease is noncancelable and has a term of 12 years. 2. The annual rentals are $34,100, payable at the beginning of each year. 3. The interest rate implicit in the lease is 10%. 4. Anderson agrees to pay all executory costs and is given an option to buy the equipment for $1 at the end of the lease term. 5. The cost of the equipment to the lessor is $221,000, and the fair retail value is approximately $255,600. 6. The lessor incurs no material initial direct costs. 7. The collectibility of the rentals is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor. 8. The lessor estimates that the fair value is expected to be significantly greater than $1 at the end of the lease term.

9. The lessor calculates that the present value on January 1, 2013 of 12 annual payments in advance of $34,100 discounted at 10% is $255,581.58 (the $1 purchase option is ignored as immaterial).

Question

1. The following partially completed schedule will help you to organize the information for this requirement.

Annual Lease Payments Received Interest Revenue at 10% on Net Investment Lease Receivable Unearned Interest Leases Net Investment Jan. 1, 2013 409,200.00 153,618.42 255,581.58 Jan. 1, 2013                                                                34,100.00                   375,100.00                   221,481.58 Dec. 31, 2013 ? ?                   255,581.58 Jan. 1, 2014                                                                34,100.00 ? ? Dec. 31, 2014 ? ? ?

Explanation / Answer

Journal entries for Ballieu-

Lease term 12 year Annual Rent at begning $36,400.00 Imlicit Rate 14% Cost of Equiment $198,000.00 Fair retail value $234,900.00 Present value of annual rent $234,879.48

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