Question
In: Accounting
2. Caterpillar Financial Services Corp. (a subsidiary of Caterpillar) and Sterling Construction Corp. sign a lease...
2. Caterpillar Financial Services Corp. (a subsidiary of
Caterpillar) and Sterling Construction Corp. sign a lease agreement
dated January 1, 2017, that calls for Caterpillar to lease a
front-end loader to Sterling beginning January 1, 2017. The terms
and provisions of the lease agreement, and other pertinent data,
are as follows.
• The term of the lease is five years. The lease agreement is
non-cancelable, requiring equal rental payments at the beginning of
each year (annuity-due basis).
• The loader has a fair value at the inception of the lease of
$50,000, an estimated economic life of five years, and no residual
value of the loader at the end of the lease. Further, assume that
the underlying asset has an $42,500 cost to the dealer,
Caterpillar.
• The lease contains no renewal options. The loader reverts to
Caterpillar at the termination of the lease.
• Collectability of payment by Caterpillar is probable.
• Caterpillar sets the annual rental payment to earn a rate of
return of 4% per year (implicit rate) on its investment
2. Caterpillar Financial Services Corp. (a subsidiary of
Caterpillar) and Sterling Construction Corp. sign a lease agreement
dated January 1, 2017, that calls for Caterpillar to lease a
front-end loader to Sterling beginning January 1, 2017. The terms
and provisions of the lease agreement, and other pertinent data,
are as follows.
• The term of the lease is five years. The lease agreement is
non-cancelable, requiring equal rental payments at the beginning of
each year (annuity-due basis).
• The loader has a fair value at the inception of the lease of
$50,000, an estimated economic life of five years, and no residual
value of the loader at the end of the lease. Further, assume that
the underlying asset has an $42,500 cost to the dealer,
Caterpillar.
• The lease contains no renewal options. The loader reverts to
Caterpillar at the termination of the lease.
• Collectability of payment by Caterpillar is probable.
• Caterpillar sets the annual rental payment to earn a rate of
return of 4% per year (implicit rate) on its investment
Required:
1. What kind of lease is this to Caterpillar?
2. Calculate the amount of the annual rental payment
required
3. Compute the amount of Lease Receivable for
Caterpillar.
4. Prepare a journal entry to record the Lease Receivable on
January 1, 2017
5. Prepare an amortization schedule that would be suitable for
the lessor
6. Prepare journal entry to record Caterpillar receipt of the
first year’s lease payment on January 1, 2017
7. Prepare journal entry to record accrued interest revenue on
the lease receivable at Dec 31, 2017
8. Prepare a partial Balance Sheet for Caterpillar Finance as
December 31, 2017
9. Prepare a partial Income Statement for Caterpillar Finance
as December 31, 2017
10. Prepare journal entry to record the receipt of the lease
payment of January 1, 2018
11. Prepare journal entry to record accrued interest revenue
on the lease receivable at Dec 31, 2018
12. Prepare journal entry to record accrued interest revenue
on the lease receivable at Dec 31, 2021
13. Prepare journal entry to record the return of leased asset
to Caterpillar on January 1, 2022
Solutions
ekkarill92 answered 1 year agoRelated Solutions
Caterpillar Financial Services Corp. (a subsidiary of Caterpillar) and Sterling Construction Corp. sign a lease agreement...
Caterpillar Financial Services Corp. (a subsidiary of
Caterpillar) and Sterling Construction Corp. sign a lease agreement
dated January 1, 2017, that calls for Caterpillar to lease a
front-end loader to Sterling beginning January 1, 2017. The terms
and provisions of the lease agreement, and other pertinent data,
are as follows.
• The term of the lease is five years. The lease agreement is
non-cancelable, requiring equal rental payments at the beginning of
each year (annuity-due basis).
• The loader has...
Illustration: Caterpillar Financial Services Corp. (a subsidiary of Caterpillar) and Sterling Construction Corp. sign a lease...
Illustration: Caterpillar Financial Services Corp. (a subsidiary
of Caterpillar) and Sterling Construction Corp. sign a lease
agreement dated January 1, Year 7, that calls for Caterpillar to
lease a front-end loader to Sterling beginning January 1, Year 7.
The terms and provisions of the lease agreement, and other
pertinent data, are as follows.
•The term of the lease is five years. The lease agreement is
noncancelable, requiring equal rental payments of $25,981.62 at the
beginning of each year (annuity-due basis)....
Caterpillar Financial Services Corp. (a subsidiary of Caterpillar) and Sterling Construction Corp. sign a lease agreement...
Caterpillar Financial Services Corp. (a subsidiary of
Caterpillar) and Sterling Construction Corp. sign a lease agreement
dated January 1, 2017, that calls for Caterpillar to lease a
front-end loader to Sterling beginning January 1, 2017. The terms
and provisions of the lease agreement, and other pertinent data,
are as follows.
• The term of the lease is five years. The lease agreement is
non-cancelable, requiring equal rental payments at the beginning of
each year (annuity-due basis).
• The loader has...
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