Skysong Leasing Company signs a lease agreement on January 1, 2017, to lease ele
ID: 2512354 • Letter: S
Question
Skysong Leasing Company signs a lease agreement on January 1, 2017, to lease electronic equipment to Concord 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:
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(a) Prepare the journal entries on the books of Skysong Leasing to reflect the payments received under the lease and to recognize income for the years 2017 and 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 0.527552 and the final answers to 0 decimal places e.g. 5,275.)
Date
Account Titles and Explanation
Debit
Credit
(b) Assuming that Concord Company exercises its option to purchase the equipment on December 31, 2018, prepare the journal entry to reflect the sale on Skysong’s books. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 0.527552 and the final answers to 0 decimal places e.g. 5,275.)
Date
Account Titles and Explanation
Debit
Credit
12/31/18
1. Concord Company has the option to purchase the equipment for $16,300 upon termination of the lease. 2. The equipment has a cost and fair value of $155,000 to Skysong Leasing Company. The useful economic life is 2 years, with a salvage value of $16,300. 3. Concord Company is required to pay $4,900 each year to the lessor for executory costs. 4. Skysong Leasing Company desires to earn a return of 8% 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 lessor.Explanation / Answer
Skysong Leasing Company
Amount to be recovered (fair value) $155,000
Less: Present value of the scrap value (16,300* 0.857) (13969.1)
(Present value factor at 8% = 0.857 n= 2 years)
Amount to be recovered through periodic lease payments $141030.9_
Periodic Lease Payment $141030.9 ÷ 1.7833 $ 79,084
(present value of an annuity: n=2, i=10%)
Lease Amortization Schedule
Date
Annual Payment less cost
Interest on lease receivable
Recovery of lease receivable
Balance of Lease receivable
1/1/17
$155,000
12/31/17
$ 79,084
$12,400
66,684
88316
12/31/18
$ 79,084
$7065
72,019
16,297
19465
a) Prepare the journal entries on the books of Skysong Leasing to reflect the payments received under the lease and to recognize income for the years 2017 and 2018
Date
Title
Debit
Credit
1/1/17
Lease Receivable
$155,000
Equipment
$155,000
12/31/17
Cash
83984 (79084+4900)
Executory Cost Payable
$5000
Lease receivable
$ 66,684
Interest Revenue
$12,400
12/31/18
Cash
83984
Executory Cost Payable
$5000
Lease receivable
72,019
Interest Revenue
$7065
B) Assuming that Concord Company exercises its option to purchase the equipment on December 31, 2018, prepare the journal entry to reflect the sale on Skysong’s books.
Date
Title
Debit
Credit
1/1/17
Lease Receivable
$155,000
Equipment
$155,000
12/31/17
Cash
83984 (79084+4900)
Executory Cost Payable
$5000
Date
Annual Payment less cost
Interest on lease receivable
Recovery of lease receivable
Balance of Lease receivable
1/1/17
$155,000
12/31/17
$ 79,084
$12,400
66,684
88316
12/31/18
$ 79,084
$7065
72,019
16,297
19465
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