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In: Accounting
Lorax Corporation (lessor) leased an airplane to Dorax Company (lessee) on 1/1/20 on a six-year noncancellable...
- Lorax Corporation (lessor) leased an airplane to Dorax Company (lessee) on 1/1/20 on a six-year noncancellable lease. Annual payments of $292,000 are to be made each January 1st. The airplane has an estimated fair value of $1,750,000 and cost Lorax $1,200,000. It has a useful life of eight years, and an estimated $200,000 residual value at the end of the lease, which Dorax has not guaranteed. Lorax uses a rate of 4% in setting the lease payments. Prepare Lorax's lease amortization table and the journal entries that Lorax will make in 2020.
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| Date | Lease payment & UGRV $ | Present Value Factor @4% | Present Value $ | |||
| 0 | 01-01-2020 | 292,000 | 1 | 292,000 | ||
| 1 | 01-01-2021 | 292,000 | 0.96154 | 280,770 | ||
| 2 | 01-01-2022 | 292,000 | 0.92456 | 269,972 | ||
| 3 | 01-01-2023 | 292,000 | 0.88900 | 259,588 | ||
| 4 | 01-01-2024 | 292,000 | 0.85480 | 249,602 | ||
| 5 | 01-01-2025 | 292,000 | 0.82193 | 240,004 | ||
| 6 | 31-12-2025 | 200,000 | 0.79031 | 158,066 | ||
| Total | 1,952,000 | 1,750,000 | ||||
| 1.) | Lease Amortization Table | |||||
| Date | Lease payment & UGRV $ | Interest Revenue $ @4% | Reduction in lease receivable $ | Lease receivable $ | ||
| 01-01-2020 | 1,750,000 | |||||
| 01-01-2020 | 292,000 | - | 292,000 | 14,,8,000 | ||
| 01-01-2021 | 292,000 | 58,320 | 233,680 | 1,224,320 | ||
| 01-01-2022 | 292,000 | 48,973 | 243,027 | 981,293 | ||
| 01-01-2023 | 292,000 | 39,252 | 252,748 | 728,545 | ||
| 01-01-2024 | 292,000 | 29,142 | 262,858 | 465,686 | ||
| 01-01-2025 | 292,000 | 18,627 | 273,373 | 192,314 | ||
| 31-12-2025 | 200,000 | 7,687 | 192,313 | 0 | ||
| Total | ||||||
| 2.) | Date | Particulars | Debit $ | Credit $ | ||
| 01-01-2020 | Lease Receivable | 1,750,000 | ||||
| Cost of goods sold | 1,200,000 | |||||
| Sales Revenue | 1,750,000 | |||||
| Airplane | 1,200,000 | |||||
| 01-01-2020 | Cash | 292,000 | ||||
| Lease Receivable | 292,000 | |||||
| 31-12-2020 | Interest Receivable | 58,320 | ||||
| Interest Revenue | 58,320 | |||||
| ( 1,750,000 - 292,000 ) x 4% | ||||||
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