Beme Company lessor) enters into a lease with Fox Company to lease equipment to

Question

Beme Company lessor) enters into a lease with Fox Company to lease equipment to Fax beginning January 1, 2016. The lease terms, provisions, and related events are as follows 1. The lease term is 4 years. The lease is noncancelable and requires annual rental payments of s50.000 to be made at the end of each 2. The equipment costs $130,000. The equipment has an estimated life of 4 years and an estimated residual value at the end of zero 3. Fox agrees to pay all executory costs 4. The interest rate implicit in the lease is 12% 5 The initial direct costs are insignificant and assumed to be zero 6 The collectbility 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

Explanation / Answer

Beme Company

Lease paments received and interest revenue earned summary

Date Annual lease payment received Interest at 12% on net leasepayment amount of net investment reveiced lease receivable unearned interest : lease Net investment 01/01/16 $0 $0 $0 $2,00,000 $48,132 $1,51,868 31/12/16 $50,000 $18,224 $31,776 $1,50,000 $29,908 $1,20,092 31/12/17 $50,000 $14,411 $35,589 $1,00,000 $15,497 $84,503 31/12/18 $50,000 $10,140 $39,860 $50,000 $5,357 $44,643 31/12/19 $50,000 $5,357 $44,643 $0 $0 $0

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