In: Accounting
Sanders Leasing Company signs an agreement on January
1, 2020, to lease equipment to El Paso Company. The following
information relates to this agreement:
The term of the non-cancelable lease is 5 years with
no renewal option. The equipment has an estimated economic life of
5 years.
The cost of the asset to the lessor is $320,000. The
fair value of the asset at January 1, 2020, is $320,000.
The asset will revert to the lessor at the end of the
lease term, at which time the asset is expected to have a residual
value of $34,000, none of which is guaranteed.
The agreement requires equal annual rental payments,
beginning on January 1, 2020.
Collectibility of the lease payments by Sanders is
probable.
Instructions
(Round all numbers to the nearest dollar.)
(a) Assuming the lessor desires an 8% rate
of return on its investment, calculate the amount of the annual
rental payment required. (Round to the nearest
dollar.)
(b) Prepare an amortization schedule that
is suitable for the lessor for the lease term.
(c) Prepare all of the journal entries for
the lessor for 2020 and 2021 to record the lease agreement, the
receipt of lease payments, and the recognition of revenue.
Assume the lessor’s annual accounting period ends on December 31,
and it does not use reversing entries.
can you please solve this question as soon as possible. Thank
you
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Part 1 | |||||
PV | $ -320,000 | Fair Value | B5 | ||
I | 8% | Rate | B6 | ||
N | 5 | Period | B7 | ||
PMT | ? | B8 | |||
FV | $ 34,000 | Non Guranteed Residual Value | B9 | ||
Type | 1 | Type | B10 | ||
Periodic Lease Payment | $ 68,843 | PMT(B6,B7,B5,B9,B10) | |||
Part 2 | |||||
Date | Annual Lease Payment | Interest 8% | Net Recovery | Balance | |
1/1/2020 | $ 320,000 | ||||
1/1/2020 | $ 68,843 | $ 68,843 | $ 251,157 | ||
1/1/2021 | $ 68,843 | $ 20,093 | $ 48,751 | $ 202,406 | |
1/1/2022 | $ 68,843 | $ 16,193 | $ 52,651 | $ 149,756 | |
1/1/2023 | $ 68,843 | $ 11,980 | $ 56,863 | $ 92,893 | |
1/1/2024 | $ 68,843 | $ 7,431 | $ 61,412 | $ 31,481 | |
31/12/2024 | $ 34,000 | $ 2,519 | $ 31,481 | $ 0 | |
Total | $ 378,215 | $ 58,215 | $ 320,000 | ||
Part 3 | |||||
Date | Account | Debit | Credit | ||
1/1/20 | Lease Receivable | $ 320,000 | |||
Cost of goods sold [$320,000-($34,000*0.68058)] | $ 296,860 | ||||
Sales Revenue | $ 296,860 | ||||
Inventory | $ 320,000 | ||||
1/1/20 | Cash | $ 68,843 | |||
Lease Receivable | $ 68,843 | ||||
1/1/21 | Lease Receivable | $ 20,093 | |||
Interest Income | $ 20,093 | ||||
1/1/22 | Cash | $ 68,843 | |||
Lease Receivable | $ 68,843 | ||||
31/10/21 | Lease Receivable | $ 16,193 | |||
Interest Income | $ 16,193 | ||||