Manufacturers Southern leased high-tech electronic equipment from International

Question

Manufacturers Southern leased high-tech electronic equipment from International Machines on January 1, 2018. International Machines manufactured the equipment at a cost of $92.000. Manufacturers Southern's fiscal year ends December 31. (EV of S1. PV of S1. FVA of S1, PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate fector(s) from the tables provided.) Related Information: Lease term Quarterly rental payments Economic life of asset Fair value of asset Implicit interest rate ed 2 years (8 quarterly periods) $18,000 at the beginning of each period 2 years $134,496 8% ook Required 1. Show how International Machines determined the $18.000 quarterly lease payments 2. Prepare appropriate entries for International Machines to record the lease at its beginning, January 1, 2018, and the second lease payment on April 1, 2018. erences Complete this question by entering your answers in the tabs below. Required i Required 2 Show how International Machines determined the s18,000 quarterly lease payments. (Round your intermediate and final

Explanation / Answer

Computation showing for annual lease payment of $18000

Fair Value of Asset

=

$134,496

IRR p.a.

8%

Quarterly Interest rate

2%

Cumulative PVAF for 2 year @ 2%

7.472

Quarterly Lease Payment=   Fair Value of Asset/Cum Pvaf

                            = $134496/7.472

=$18000

Computation showing for annual lease payment of $18000

Fair Value of Asset

=

$134,496

IRR p.a.

8%

Quarterly Interest rate

2%

Cumulative PVAF for 2 year @ 2%

7.472

Quarterly Lease Payment=   Fair Value of Asset/Cum Pvaf

                            = $134496/7.472

=$18000

Journal Entries in the books of International Machine Date Account Title & Explantation Debit Credit 01/01/2018 Lease Receivable $134,496.00 Inventory of Equipment $134,496.00 To Record Lease recivable 01/01/2018 Cash $18,000.00 Lease Receivable -$1,340.00 To Record Lease rental received $16,660.00 01/04/2018 Cash $18,000.00 Interest Income ( $134496*2%) $2,690.00 Lease Receivable ($18000-$2690) $15,310.00 To Record Lease rental received

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