Edison Leasing leased high-tech electronic equipment to Manufacturers Southern o

Question

Edison Leasing leased high-tech electronic equipment to Manufacturers Southern on January 1, 2018. Edison purchased the equipment from International Machines at a cost of $123,651. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
Prepare a lease amortization schedule and appropriate entries for Edison Leasing from the beginning of the lease through January 1, 2019. Edison’s fiscal year ends December 31.

Related Information: Lease term 2 years (8 quarterly periods) Quarterly rental payments $16,000 at the beginning of each period Economic life of asset 2 years Fair value of asset $123,651 Implicit interest rate 4% (Also lessee’s incremental borrowing rate)

Explanation / Answer

Amortization Schedule Payment date Lease Payment Interest Expenses Decrease in Balance Lease Balance $        123,651 1 $         16,000 $              -   $               16,000 $        107,651 2 $         16,000 $       1,077 $               14,923 $          92,728 3 $         16,000 $           927 $               15,073 $          77,655 4 $         16,000 $           777 $               15,223 $          62,431 5 $         16,000 $           624 $               15,376 $          47,056 6 $         16,000 $           471 $               15,529 $          31,526 7 $         16,000 $           315 $               15,685 $          15,841 8 $         16,000 $           158 $               15,842 $                  (0) Total 128000 4349 123651 Journal Entries 1/1/2018 Right of use equipment $        123,651                 To lease Payable $        123,651 1/1/2018 Lease Payable $          16,000                   To Cash $          16,000 31/03/2018 Lease Payable $          14,923 Interest Expenses $            1,077                     To Cash $          16,000 31/03/2018 Amortization expenses * $          15,456              To Right of Use Equipment $          15,456 30/06/2018 Lease Payable $          15,073 Interest Expenses $                927                     To Cash $          16,000 30/06/2018 Amortization expenses * $          15,456              To Right of Use Equipment $          15,456 30/09/2018 Lease Payable $          15,223 Interest Expenses $                777                     To Cash $          16,000 30/09/2018 Amortization expenses * $          15,456              To Right of Use Equipment $          15,456 31/12/2018 Lease Payable $          15,376 Interest Expenses $                624                     To Cash $          16,000 31/12/2018 Amortization expenses * $          15,456              To Right of Use Equipment $          15,456 * Amortization Expenses = 123651/8     = 15456

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