Question

Exercise 21-05 Splish Brothers Leasing Company signs an agreement on January 1, 2020, to lease equipment to Cole Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years. 2. The cost of the asset to the lessor is $291,000. The fair value of the asset at January 1, 2020, is $291,000. 3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $29,100, none of which is guaranteed. 4. The agreement requires equal annual rental payments, beginning on January 1, 2020. 5. Collectibility of the lease payments by Splish Brothers is probable.

Assuming the lessor desires a 9% rate of return on its investment, calculate the amount of the annual rental payment required. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and the final answer to 0 decimal places e.g. 5,275.) Amount of the annual rental payment

Prepare an amortization schedule that is suitable for the lessor for the lease term. (Round answers to 0 decimal places e.g. 5,275.) SPLISH BROTHERS LEASING COMPANY (Lessor) Lease Amortization Schedule Date Annual Lease Payment Plus URV Interest on Lease Receivable Recovery of Lease Receivable Lease Receivable 1/1/20 1/1/20 1/1/21 1/1/22 1/1/23 1/1/24 1/1/25 12/31/25

Prepare all of the journal entries for the lessor for 2020 and 2021 to record the lease agreement, the receipt of lease payments, and the recognition of revenue. Assume the lessor’s annual accounting period ends on December 31, and it does not use reversing entries. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit 1/1/20 (To record the lease) 1/1/20 (To record the receipt of lease payment) 12/31/20 1/1/21 12/31/21

Answer 1