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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