Sheridan Leasing Company leases a new machine that has a cost and fair value of

Question

Sheridan Leasing Company leases a new machine that has a cost and fair value of $75,000 to Sharrer Corporation on a 3-year noncancelable contract. Sharrer Corporation agrees to assume all risks of normal ownership including such costs as insurance, taxes, and maintenance. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2017. Sheridan Leasing Company expects to earn a 9% return on its investment. The annual rentals are payable on each December 31. (b) Prepare an amortization schedule that would be suitable for both the lessor and the lessee and that covers all the years involved. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.) Click here to view factor tables Rent Receipt/ Payment Interest Revenue/ Expense Reduction of Principal Receivable/ Liability 12/31/17 12/31/18 12/31/19

Explanation / Answer

Date Rent Receipt / Payment Interest Revenue / Expense Reduction of principal Receivable / Liability 01-01-2017 0 0 0 75000 31-12-2017 31750 6750 25000 50000 31-12-2018 29500 4500 25000 25000 31-12-2019 27250 2250 25000 0 Alternatively we can find the equated annual installment and prepare lease amortization schedule as follow Equated annual installment 0 Date Rent Receipt / Payment Interest Revenue / Expense Reduction of principal Receivable / Liability 01-01-2017 0 0.00 0.00 75000.00 31-12-2017 29629.11 2446.44 27182.67 47817.33 31-12-2018 29629.11 4690.88 24938.23 22879.10 31-12-2019 29629.11 6750.00 22879.11 0.00 Equated annual installment 29629.11 Principal amount 75000 Present Value of annuity@9% Interest 0.917431 0.84168 0.772183 Total annuity 2.531295 2.53129467 Divide principal amount by total annuity to arrive at equated annual installment 29629.11

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