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Question Lease Signed on January 1, 2015 Lease term 7 Years Fair value of equipment Rs....

Question

Lease Signed on January 1, 2015

Lease term 7 Years

Fair value of equipment Rs. 80,000

Cost of the leased asset Rs. 70,000

Life 7 Years

Rental payments (Payable at the beginning) Rs. 14477.42

Implicit rate 12%

Residual value 0

Required

(1) Journal entries in the books of lessor for the first year.

(2) Prepare lease amortization schedule. (Show complete computations)

Solutions

Expert Solution

Requirement 1:

Date Account title and explanation Debit Credit
Jan 1,2015 Lease receivable* $74,000
Equipment $74,000
[To record lease]
Jan 1,2015 Cash $14,477.42
Lease receivable $14,477.42
[To record receipt of lease rent]
Dec 31,2015 Interest receivable $7,143
Interest revenue $7,143
[To record accrued interest revenue]

*Calculations:

Lease receivable = $14,477.12 x 5.11141 PV annuity factor (12%, 7 yeas) = $74,000

Requirement 2:

Lease amortization Schedule
Date Cash interest Interest revenue Decrease in carrying value Carrying value
01/01/2015 $74,000.00
01/01/2015 $14,477.42 $14,477.42 $59,522.58
01/01/2016 $14,477.42 $7,143 $7,334.71 $52,187.87
01/01/2017 $14,477.42 $6,263 $8,214.88 $43,972.99
01/01/2018 $14,477.42 $5,277 $9,200.66 $34,772.33
01/01/2019 $14,477.42 $4,173 $10,304.74 $24,467.59
01/01/2020 $14,477.42 $2,936 $11,541.31 $12,926.28
01/01/2021 $14,477.42 $1,551 $12,926.28 $0.00
Total $101,341.94 $27,342 $74,000.00
  • Interest revenue = Preceding carrying value x 12%
  • Decrease in carrying value = Cash interest - Interest revenue
  • Carrying value = Preceding carrying value - Decrease in carrying value

ekkarill92 answered 2 years ago
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