Manufacturers Southern leased high-tech electronic equipment from Edison Leasing

Question

Manufacturers Southern leased high-tech electronic equipment from Edison Leasing on January 1, 2013. Edison purchased the equipment from International Machines at a cost of $126,890. (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 for the term of the lease. Also record the appropriate entries for Manufacturers Southern from the inception of the lease through January 1, 2014. Depreciation is recorded at the end of each fiscal year (December 31) on a straight-line basis. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)

1. Record the lease.

2. Record cash payment.

3. Record cash payment.

4. Record cash payment.

5. Record cash payment.

6. Record interest expense.

7. Record depreciation expense.

8. Record cash payment.

  Related Information:   Lease term   2 years (8 quarterly periods)   Quarterly rental payments   $16,700 at the beginning of each period   Economic life of asset   2 years   Fair value of asset   $126,890   Implicit interest rate   6%   (Also lessee’s incremental borrowing rate)

Explanation / Answer

Payment Number Lease Payments Interest Expense Decrease in Balance Lease Balance $ 126,890 Equipment 126890 1 16700 16700 $ 110,190 Lease Liability 110190 2 16700 $ 1,652.85 $ 15,047.15 $ 95,143 cash 16700 3 16700 $ 1,427.14 $ 15,272.86 $ 79,870 4 16700 $ 1,198.05 $ 15,501.95 $ 64,368 Lease Liability $ 15,047.15 5 16700 $ 965.52 $ 15,734.48 $ 48,634 Interest $ 1,652.85 6 16700 $ 729.50 $ 15,970.50 $ 32,663 Cash 16700 7 16700 $ 489.95 $ 16,210.05 $ 16,453 8 16700 $ 246.80 $ 16,453.20 $ -0 Lease Liability $ 15,272.86 Totals $ 133,600 $ 6,710 $ 126,890 Interest $ 1,427.14 Cash 16700 Lease Liability $ 15,501.95 Interest $ 1,198.05 Cash 16700 Depreciation $ 63,445 Accumulated Depreciation $ 63,445 (50% of 126890)

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