Question

Edison Leasing leased high-tech electronic equipment to Manufacturers Southern on January 1, 2018. Edison purchased the equipment from International Machines at a cost of $131,591. (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	$18,200 at the beginning of each period
Economic life of asset	2 years
Fair value of asset	$131,591
Implicit interest rate	12%
(Also lessee’s incremental borrowing rate)

Required:
Prepare a lease amortization schedule and appropriate entries for Edison Leasing from the beginning of the lease through January 1, 2019. Edison’s fiscal year ends December 31.

Answer 1

Lease amortization schedule

Date	Beg.Bal.	Interest	Cash	Lease Rental
		Income	Received	Accounted
Jan.1,2018	131591	0	18200	18200
Apr.1, 2018	113391	3402	18200	14798
July.1,2018	98593	2958	18200	15242
Oct.1, 2018	83351	2501	18200	15699
Jan.1,2019	67651	2030	18200	16170
Apr.1, 2019	51481	1544	18200	16656
July.1,2019	34825	1045	18200	17155
Oct.1, 2019	17670	530	18200	17670
T o t a l		14009	145600	131591

Date	Account Title	Debit	Credit
Jan.1,2017	Lease Receivable	131591
	Asset		131591
	(Start of the lease)
Jan.1,2017	Cash	18200
	Lease Receivable		18200
	(Receipt of first lease rental)
Apr.1,2017	Cash	18200
	Interest Income		3402
	Lease Receivable		14798
	(Receipt of second lease rental)
July.1, 2017	Cash	18200
	Interest Income		2958
	Lease Receivable		15242
	(Receipt of third lease rental)
Oct.1, 2017	Cash	18200
	Interest Income		2501
	Lease Receivable		15699
	(Receipt of fourth lease rental)
Dec.31,2017	Interest Receivable	2030
	Interest Income		2030
	(Interest from lease rental recorded)
Jan.1, 2018	Cash	18200
	Interest Receivable		2030
	Lease Receivable		16170
	(Receipt of fifth lease rental)
Apr.1,2017	Cash	18200
	Interest Income		1544
	Lease Receivable		16656
	(Receipt of sixth lease rental)
July.1, 2017	Cash	18200
	Interest Income		1045
	Lease Receivable		17155
	(Receipt of seventh lease rental)
Oct.1, 2017	Cash	18200
	Interest Income		530
	Lease Receivable		17670
	(Receipt of eighth lease rental)