Question

Grichuk Power leased high-tech electronic equipment from Kolten Leasing on January 1, 2018. Kolten purchased the equipment from Wong Machines at a cost of $253,500, its fair value. (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.)

Related Information:
Lease term	2 years (8 quarterly periods)
Quarterly lease payments	$18,500 at Jan. 1, 2018, and at Mar. 31, June 30, Sept. 30, and Dec. 31 thereafter.
Economic life of asset	5 years
Interest rate charged by the lessor	12%

Required:
Prepare a lease amortization schedule and appropriate entries for Grichuk Power from the commencement of the lease through December 31, 2018. December 31 is the fiscal year end for each company. Appropriate adjusting entries are recorded at the end of each quarter.

Answer 1

Present Value of Minimum Lease Payments = $18500 x PVOAD(3%,8) = $18500 x 7.0197	$129,864.45
Lease Amortization Schedule
Period	Lease Payments	Effective Interest = 3% x Lease Balance	Decrease in Balance	Lease Balance
01/01/2018				$129,864.45
03/31/2018	$18,500.00	$3,895.93	$14,604.07	$115,260.38
06/30/2018	$18,500.00	$3,457.81	$15,042.19	$100,218.20
09/30/2018	$18,500.00	$3,006.55	$15,493.45	$84,724.74
12/31/2018	$18,500.00	$2,541.74	$15,958.26	$68,766.48
03/31/2019	$18,500.00	$2,062.99	$16,437.01	$52,329.48
06/30/2019	$18,500.00	$1,569.88	$16,930.12	$35,399.36
09/30/2019	$18,500.00	$1,061.98	$17,438.02	$17,961.34
12/31/2019	$18,500.00	$538.84	$17,961.16	$0.18
Total	$148,000.00	$18,135.73	$129,864.27
Journal Entries
Date	Account Titles	Debit	Credit
01/01/2018	Leased Equipment	$129,864.45
	Lease Payable		$129,864.45
01/01/2018	Lease Payable	$18,500.00
	Cash		$18,500.00
03/31/2018	Interest Expenses	$3,895.93
	Lease Payable	$14,604.07
	Cash		$18,500.00
06/30/2018	Interest Expenses	$3,457.81
	Lease Payable	$15,042.19
	Cash		$18,500.00
09/30/2018	Interest Expenses	$3,006.55
	Lease Payable	$15,493.45
	Cash		$18,500.00
12/31/2018	Interest Expense	$2,541.74
	Interest Payable		$2,541.74
12/31/2018	Depreciation Expenses = 129864.45/2	$64,932.22
	Accumulated Depreciation		$64,932.22