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 $127,650. (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 $16,800 at the beginning of each period Economic life of asset 2 years Fair value of asset $127,650 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

Lease Term	2 years years (8 quarterly periods)
Quarterly lease payments	16800
Interest rate charged by the lessor	6%	6/4 quarters = 1.5%

lease amortization schedule
Payment Date	Lease Payments	Interest Expense	Decrease In balance	Lease Balance
				127,650
1	16800		16800	110,850
2	16800	1663	15137	95,713
3	16800	1436	15364	80,348
4	16800	1205	15595	64,754
5	16800	971	15829	48,925
6	16800	734	16066	32,859
7	16800	493	16307	16,552
8	16800	248	16552	0

Date	Genera Journal	Debit	Credit
1/1/2018	Lease Receivable	127,650
	Inventory of equipment		127,650
1/1/2018	Cash	16800
	Lease Receivable		16800
3/31/2018	Cash	16800
	Interest revenue		1663
	Lease Receivable		15137
3/31/2018	Amortization expense	15956
	Right-of-use equipment		15956
	127650/8
6/30/2018	Cash	16800
	Interest revenue		1436
	Lease Receivable		15364
6/30/2018	Amortization expense	15956
	Right-of-use equipment		15956
9/30/2018	Cash	16800
	Interest revenue		1205
	Lease Receivable		15595
9/30/2018	Amortization expense	15956
	Right-of-use equipment		15956
12/31/2018	Cash	16800
	Interest revenue		971
	Lease Receivable		15829
12/31/2018	Amortization expense	15956
	Right-of-use equipment		15956