Laura Leasing Company signs an agreement on January 1, 2017, to lease equipment

Question

Laura Leasing Company signs an agreement on January 1, 2017, to lease equipment to Sage Hill Company. The following information relates to this agreement. The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years. The fair value of the asset at January 1, 2017, is $78,000 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 $6,000, none of which is guaranteed The agreement requires equal annual rental payments of $25,178 to the lessor, beginning on January 1, 2017 The lessee's incremental borrowing rate is 5%. The lessor's implicit rate is 4% and is unknown to the lessee. Sage Hill uses the straight-line depreciation method for all equipment. 1. 2. 3. 4. 5. 6. fa (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) ? (a) Prepare an amortization schedule that would be suitable for the lessee for the lease term. (Round answers to 0 decimal places, e.g. 5,265.) SAGE HILL COMPANY (Lessee) Lease Amortization Schedule Annual Lease Payment Interest on Liability Reduction of Lease Liability Date Lease Liability

Explanation / Answer

Present Value of minimum lease payments = 25178*2.88609= $72666 Date Annual Lease Payment Interest on liability Reduction ofLease Liability Lease Liability 1/1/2017 72666 1/1/2017 25178 0 25178 47488 1/1/2018 25178 1900 23278 24210 1/1/2019 25178 968 24210 0

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