Contact UsI Log Lhtermediate Accounting, 16e Intermediate Accounting (ACC 334/33
ID: 2574010 • Letter: C
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Contact UsI Log Lhtermediate Accounting, 16e Intermediate Accounting (ACC 334/335 ctice Gradebook ORION Downloadable eTextbook FULL SCREEN PRENTER VERSZON Question Laura Leasing Company signs an agreement on January 1, 2017, to lease equipment to widhorse Company. The following information relates to this agreement. 1. The term of the nencancelable lease is 5 years with no renewal option. The equipment has an estimated economic ife of 5 years. 2. The fair value of the asset at January 1, 2017, is $76,300. 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 $6,700, none of which is guaranteed. 4. wihorse Company assumes direct responsibility for all executory costs, which indude the following annual amounts: (1) $900 to Rocky Mountain Insurance Company for insurance and (2) $1,650 to Laciede County for property taxes 5. The agreement requires equal annual rental payments of s17,629.44 to the lessor, beginning on January I, 2017 The lessee's incremenal borroweg rate is 12%. The essor's impicit rate is 11% is known to the lessee. 7. Widhorse Company uses the straight-line depreciation method for al equipment 8. Widhorse uses reversing entries when appropriate. Prepare an amortization schedule that would be suitable for the lessee for the lease term. (Round present value facter calcufations to S decimal places, e.g. 1.25124 answers to 2 decimal places, e.g. 15.25.) Liabilit /1sz A29 44Explanation / Answer
WILDHORSE COMPANY (Lessee)
Lease Amortization Schedule:
Date
Annual Lease Payment Plus URV
Interest (11%) on Lease Receivable
Recovery
of Lease Receivable
Lease Receivable
1/1/17
$72,323.90
1/1/17
$ 17,629.44
$ 0
$ 17,629.44
54,694.46
1/1/18
17,629.44
6,016.39
11,613.05
43,081.41
1/1/19
17,629.44
4,738.96
12,890.48
30,190.93
1/1/20
17,629.44
3,321
14,398.44
15,882.49
1/1/21
17,629.44
1,747.07
15,882.37
0.07 = 0
$88,147.20
$15,823.42
$72,413.78
Present value of lease payments = Annual lease payments * PV of annuity 11% for 5 years
= 17,629.44 * 4.10245
= $72,323.90
Journal entries:
Date
Account title
Debit
Credit
1/1/17
Lease equipment- capital lease
Lease liability
72,323.90
72,323.90
1/1/17
Lease liability
Cash
17,629.44
17,629.44
During 2017
Insurance expenses
Cash
900
900
Property tax
Cash
1,650
1,650
12/31/2017
Interest expense
Interest payable
6,016.39
6,016.39
Depreciation expenses
Accumulated depreciation - capital lease
(72,323.90 / 5years)
14,464.78
14,464.78
1/1/18
Interest Payable
Interest expense
6,016.39
6,016.39
1/1/18
Interest expense
Lease liability
Cash
6,016.39
11,613.05
17,629.44
During 2018
Insurance expenses
Cash
900
900
Property tax
Cash
1,650
1,650
12/31/2018
Interest expense
Interest payable
4,738.96
4,738.96
Depreciation expenses
Accumulated depreciation - capital lease
(72,323.90 / 5years)
14,464.78
14,464.78
Date
Annual Lease Payment Plus URV
Interest (11%) on Lease Receivable
Recovery
of Lease Receivable
Lease Receivable
1/1/17
$72,323.90
1/1/17
$ 17,629.44
$ 0
$ 17,629.44
54,694.46
1/1/18
17,629.44
6,016.39
11,613.05
43,081.41
1/1/19
17,629.44
4,738.96
12,890.48
30,190.93
1/1/20
17,629.44
3,321
14,398.44
15,882.49
1/1/21
17,629.44
1,747.07
15,882.37
0.07 = 0
$88,147.20
$15,823.42
$72,413.78
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