Question
In: Accounting
The following facts pertain to a non-cancelable lease agreement between Shamrock Leasing Company and Pharoah Company,...
The following facts pertain to a non-cancelable lease agreement between Shamrock Leasing Company and Pharoah Company, a lessee.
| Commencement Date | May 1, 2017 |
| Annual Lease Payment due at the Beginning of Each Year, Beginning with May 1, 2107 | $17,225.30 |
| Bargain purchase option price at end of lease term | $4,000 |
| Lease term | 5 years |
| Economic life of leased equipment | 10 years |
| Lessor’s cost | $55,000 |
| Fair value of asset at May 1, 2017 | $77,000 |
| Lessor's Implicit Rate | 8% |
| Lessee's Incremental Borrowing Rate | 8% |
The collectibility of the lease payments by Shamrock is probable.
Compute the amount of the lease receivable at commencement of the lease.
Prepare a lease amortization schedule for Shamrock for the 5-year lease term.
Prepare the journal entries to reflect the signing of the lease agreement and to record the receipts and income related to this lease for the years 2017 and 2018. The lessor’s accounting period ends on December 31. Reversing entries are not used by Shamrock.
Suppose the collectibility of the lease payments was not probable for Shamrock. Prepare all necessary journal entries for the company in 2017.
Solutions
Expert Solution
| Date | Annual Lease | Interest (8%) on Unpaid | Reduction of Lease | Balance of Lease |
| Payment/Receipt | Liability/Receivable | Liability/Receivable | Liability/Receivable | |
| 01-May-17 | 77000 | |||
| 01-May-17 | 17225.3 | 59,775 | ||
| 01-May-18 | 17225.3 | 4,781.98 | 12,443.32 | 47,331 |
| 01-May-19 | 17225.3 | 3,786.51 | 13,438.79 | 33,893 |
| 01-May-20 | 17225.3 | 2,711.41 | 14,513.89 | 19,379 |
| 01-May-21 | 17225.3 | 1,550.30 | 15,675.00 | 3,704 |
| 31-05-2021 | 4000 | 296.30 | 3,703.70 | 0 |
| 90126.5 | 13,126.48 | 59,774.72 |
| Journal Entry | |||
| Date | Accoutn Tittle | Debit | Credit |
| 01-05-2017 | sales | 77,000.00 | |
| Cost of Goods Sold | 55,000.00 | ||
| Lease Receivable | 77,000.00 | ||
| Inventory | 55,000.00 | ||
| To Recor dthe Lease | |||
| 01-05-2017 | Cash | 17,225.30 | |
| Lease Receivable | 17,225.30 | ||
| To Record Lease Payment | |||
| 31-05-2017 | Interest Receivable | 3,187.99 | |
| Interest Revenue | 3,187.99 | ||
| (4781.98/12*8) | |||
| 01-05-2018 | cash | 17225.303 | |
| Interest Receivable | 3187.99 | ||
| Interest Revenue (4781.98/12*4) | 1593.9933 | ||
| Lease Receivable | 12443.32 | ||
| 31-05-2018 | Interest Receivable | 2,524.34 | |
| Interest Revenue | 2,524.34 | ||
| (3786.51/12*8) | |||
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