Exercise 21A-13 b Your answer is partially correct. Try again Blossom Company le

Question

Exercise 21A-13 b Your answer is partially correct. Try again Blossom Company leases a building to Walsh, Inc. on January 1, 2017. The following facts pertain to the lease agreement. 1. The lease term is 6 years, with equal annual rental payments of $3,410 at the beginning of each year 2. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature 3. The building has a fair value of $18,900, a book value to Blossom of $11,900, and a useful life of 7 years. 4. At the end of the lease term, Blossom and Walsh expect there to be an unguaranteed residual value of $2,975. 5. Blossom wants to earn a return of 8% on the lease, and collectibility of the payments is probable. This rate is known by walsh er factor table

Explanation / Answer

Lease amortization schedule Year Rental Payments PVIF@8% Present Worth Interest 0 3410 1 3410 0 1 3410 0.9259259 3157.407 252.5925926 2 3410 0.8573388 2923.525 486.4746228 3 3410 0.7938322 2706.968 703.0320581 4 3410 0.7350299 2506.452 903.548202 5 3410 0.6805832 2320.789 1089.211298 6 2975 0.6301696 1874.755 Total 18899.9 Blossom Journal Entries Date Account Title & Explanations Debit Credit 01-01-2017 Lease Receivable 18900 Cost of goods sold 11900 Sale Revenue 18900 Inventory 11900 To record the lease 01-01-2017 Cash 3410 Lease Receivable 3410 To record lease payment 31-12-2017 Lease Receivable 253 Interest Revenue 253 Walsh's Journal Entries Date Account Title & Explanations Debit Credit 01-01-2017 Right of use asset 18900 Leased Liability 18900 To record the lease 01-01-2017 Leased Liability 3410 Cash 3410 To record Leased Liabiltiy 31-12-2017 Interest Expense 253 Leased Liability 253 To record the interest expense 31-12-2017 Amortization expense 3150 Right to use asset 3150 Note : Amostization expense is calculated as below = Right to use asset/Lease term = 18900/6 years = 3150

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