gnment CALCULATOR FULL SCREEN PRINTS Laura Leasing Company signs an agreement on

Question

gnment CALCULATOR FULL SCREEN PRINTS Laura Leasing Company signs an agreement on January 1, 2017, to lease equipment to Windsor Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years. 2. The fair value of the asset at January 1, 2017, is $62,000. 3. 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 $4,000, none of which is guaranteed. 4. The agreement requires equal annual rental payments of $20,250 to the lessor, beginning on January 1, 2017. | 5. The lessee's incremental borrowing rate is 5%. The lessor's implicit rate is 4% and is unknown to the lessee. 6. Windsor uses the straight-line depreciation method for all equipment. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Prepare an amortization schedule that would be suitable for the lessee for the lease term. (Round answers to O decimal places, e.g. 5,265.) WINDSOR COMPANY (Lessee) Lease Amortization Schedule Annual Lease Payment Interest on Liability Reduction of Lease Liability eLease Liebilty Date Lease Liability 20250 20250 20250

Explanation / Answer

PV of lease payments at 5% = 20250*PV factor of annuity due(5,3) = 20250*2.85941 = $ 57,903 AMORTIZATION TABLE: Date Annual lease payment Interest on liability Reduction of lease liability Lease liability 01-01-2017 57903 01.01.2017 20250 0 20250 37653 01-01-2018 20250 1883 18367 19286 01-01-2019 20250 964 19286 0

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