Question

The following facts pertain to a noncancelable lease agreement between Indigo Leasing Company and Sweet Company, a lessee.

Inception date:May 1, 2017Annual lease payment due at the beginning of   each year, beginning with May 1, 2017$23,007.91Bargain-purchase option price at end of lease term$4,400Lease term5 yearsEconomic life of leased equipment10 yearsLessor’s cost$68,000Fair value of asset at May 1, 2017$97,000Lessor’s implicit rate11%Lessee’s incremental borrowing rate11%
The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs.

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(a)

Your answer is correct.  

Compute the amount of the lease receivable at the inception of the lease. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and Round answers to 2 decimal places, e.g. 16.25.)

Lease receivable at inception

$

(b)

Prepare a lease amortization schedule for Indigo Leasing Company for the 5-year lease term. (Round answers to 2 decimal places, e.g. 16.25.)

INDIGO LEASING COMPANY (Lessor)
Lease Amortization Schedule

Date

Annual Lease Payment Plus
BPO

Interest on Lease
Receivable

Recovery of Lease
Receivable

Lease Receivable

5/1/17

$

$

$

$

5/1/17

$

$

$

5/1/18

5/1/19

5/1/20

5/1/21

4/30/22

$

$

$

Answer 1

(a)	97,000.00
(b)	Lease Amortization Schedule
	Date	Annual Lease Payment Plus BPO	Interest on Liability	Reduction of Lease Liability	Lease Liability
	5/1/17				97,000.00
	5/1/17	23,007.91	-	23,007.91	73,992.09
	5/1/18	23,007.91	8,139.13	14,868.78	59,123.31
	5/1/19	23,007.91	6,503.56	16,504.35	42,618.96
	5/1/20	23,007.91	4,688.09	18,319.82	24,299.14
	5/1/21	23,007.91	2,672.91	20,335.00	3,964.14
	4/30/22	4,400.00	435.86	3,964.14	0.00