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 $250,500, 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	$15,500 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 the lease = $ 15,500 x [ { 1 - ( 1 / 1.03 ) ⁸ } / 0.03 ] * 1.03 = $ 15,500 x $ 7.23029 = $ 112,070

Lease Amortization Schedule:

Payment Date	Payments	Interest Expense	Decrease in Balance	Carrying Value
Jan 1, 2018	$ 15,500		$ 15,500	$ 96,570
Mar 31, 2018	15,500	2,897	12,603	83,967
June 30, 2018	15,500	2,519	12,981	70,986
Sep 30, 2018	15,500	2,130	13,370	57,616
Dec 31, 2018	15,500	1,728	13,772	43,844
Mar 31, 2019	15,500	1,315	14,185	29,659
June 30, 2019	15,500	890	14,610	15,049
Sep 30, 2019	15,500	451	15,049	0

In the books of Grichuk Power:

Date	Account Titles	Debit	Credit
		$	$
January 1, 2018	Leased Equipment	112,070
	Lease Payable		112,070
January 1, 2018	Lease Payable	15,500
	Cash		15,500
March 31, 2018	Interest Expense	2,897
	Lease Payable	12,603
	Cash		15,500
June 30, 2018	Interest Expense	2,519
	Lease Payable	12,981
	Cash		15,500
Sep 30, 2018	Interest Expense	2,130
	Lease Payable	13,370
	Cash		15,500
Dec 31, 2018	Interest Expense	1,728
	Lease Payable	13,772
	Cash		15,500
Dec 31, 2018	Depreciation Expense	56,035
	Accumulated Depreciation : Leased Equipment		56,035