Prepare an amortization schedule that would be suitable for the lessee for the l
ID: 2563760 • Letter: P
Question
Prepare an amortization schedule that would be suitable for the lessee for the lease term. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal
Prepare all of the journal entries for the lessee for 2017 and 2018 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee’s annual accounting period ends on December 31 and reversing entries are used when appropriate. All executory costs are paid as incurred.
The following facts pertain to a noncancelable lease agreement between Faldo Leasing Company and Bonita Company, a lessee.Inception date January 1, 2017 Annual lease payment due at the beginning of
each year, beginning with January 1, 2017 $140,144 Residual value of equipment at end of lease term,
guaranteed by the lessee $54,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, 2017 $659,000 Lessor’s implicit rate 13 % Lessee’s incremental borrowing rate 13 %
The lessee assumes responsibility for all executory costs, which are expected to amount to $5,100 per year. The asset will revert to the lessor at the end of the lease term. The lessee has guaranteed the lessor a residual value of $54,000. The lessee uses the straight-line depreciation method for all equipment.
Explanation / Answer
Year
1)Year
Annual Lease payment Interest Reduction of Lease liability Lease liability 1/1/2017 659000 1/1/2017 140144 140144 518856 1/1/2018 140144 67451 72693 446163 1/1/2019 140144 58001 82143 364021 1/1/2020 140144 47323 92821 271199 1/1/2021 140144 35256 104888 166311 1/1/2022 140144 21620 118524 47788 12/31/2022 54000 6212 47788 0 Total 894864 235864 659000 2) Date Accounts Explanation Debit Credit 1-Jan-17 Lease Equipment 659000 Lease Liability 659000 To record Lease Lease Liability 140144 Cash 140144 To record first lease payment During 2017 Executory Costs 5100 cash 5100 Dec 31,2017 Interest Expense 67451 Interest Payable 67451 (To record Interest Expense) Depreciation Expense (659000-54000)/6 100833 Accumulated Depreciation 100833 (To record Depreciation expense) 1-Jan-18 Interest Payable 67451 Lease Liability 72693 Cash 140144 To record first lease payment During 2018 Executory Costs 5100 cash 5100 ( To record the executory costs) Dec 31,2018 Interest Expense 58001 Interest Payable 58001 (To record Interest Expense) Depreciation Expense 100833 Accumulated Depreciation 100833 To record Depreciation Expense