Question

Manufacturers Southern leased high-tech electronic equipment from Edison Leasing on January 1, 2018. Edison purchased the equipment from International Machines at a cost of $117,772. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Related Information:
Lease term	2 years (8 quarterly periods)
Quarterly rental payments	$15,500 at the beginning of each period
Economic life of asset	2 years
Fair value of asset	$117,772
Implicit interest rate	6%
(Also lessee’s incremental borrowing rate)

Required:
Prepare a lease amortization schedule and appropriate entries for Manufacturers Southern from the beginning of the lease through January 1, 2019. Depreciation is recorded at the end of each fiscal year (December 31) on a straight-line basis.

Answer 1

Please find lease schedule.

Pv	Rental Payment	Discount Factor	PV of lease payment
Q1	15500	1	15,500
Q2	15500	0.985542097	15,276
Q3	15500	0.971293226	15,055
Q4	15500	0.957250363	14,837
Q5	15500	0.943410531	14,623
Q6	15500	0.929770793	14,411
Q7	15500	0.916328257	14,203
Q8	15500	0.903080073	13,998

Journal entries

At time taking asset on lease

Lease asset Accoun dr 117,772

To Lease liabilty Account 117,772

Entry for lease Payment  

Lease liablity account 15500

To Bank Account 15500

Lease schedule.

Pv	Rental Payment	Discount Factor	PV of lease payment
Q1	15500	1	15,500
Q2	15500	0.985542097	15,276
Q3	15500	0.971293226	15,055
Q4	15500	0.957250363	14,837
Q5	15500	0.943410531	14,623
Q6	15500	0.929770793	14,411
Q7	15500	0.916328257	14,203
Q8	15500	0.903080073	13,998