In: Accounting
10) Universal Leasing leases electronic equipment to a variety
of businesses. The company’s primary service is providing alternate
financing by acquiring equipment and leasing it to customers under
long-term sales-type leases. Universal earns interest under these
arrangements at a 10% annual rate.
The company leased an electronic typesetting machine it purchased
for $30,900 to a local publisher, Desktop Inc. on December 31,
2017. The lease contract specified annual payments of $8,000
beginning January 1, 2018, the beginning of the lease, and each
December 31 through 2019 (three-year lease term). The publisher had
the option to purchase the machine on December 30, 2020, the end of
the lease term, for $12,000 when it was expected to have a residual
value of $16,000, a sufficient difference that exercise seems
reasonably certain. (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:
1. Show how Universal calculated the $8,000 annual
lease payments for this sales-type lease.
2. Prepare an amortization schedule that describes
the pattern of interest revenue for Universal Leasing over the
lease term.
3. Prepare the appropriate entries for Universal
Leasing from the beginning of the lease through the end of the
lease term.
1 and 2
PV | Interest | Installment | Balance |
30900 | 0 | (8,000) | 22,900 |
22,900 | 6,227 | (8,000) | 21,127 |
21,127 | 5,744 | (8,000) | 18,871 |
18,871 | 5,131 | (8,000) | 16,002 |
3.(a) Lease Receivable a/c Dr. 30900
To Sales a/c 30900
(b)Bank a/c Dr. 8000
To Lease Receivable 8000
(c) Lease Receivable a/c Dr. 6227/ 5744/ 5131
To Interest Income
(d) Bank a/c Dr. 8000
To Lease Receivable 8000