Question

4.On Dec 31, 2018, Malton Corporation signed a five-year noncancelable lease for equipment from Brampton. The terms of the lease called for Malton to make annual payments of $50,000 each Dec 31, beginning with Dec 31, 2018, for five years with the equipment going back to the lessor at the end of this period. The equipment has an estimated useful life of 5 years and no salvage value. Malton accordingly accounts for this lease transaction as a finance lease. The minimum lease payments were determined to have a present value of $208,493 at an effective interest rate of 10%. Brampton manufactured the equipment f0r $150,000.

1. Prepare a lease amortization table for 12/31/18, 12/31/19 & 12/31/20.
2. Record Malton’s (Lessee) journal entries for 12/31/18 & 12/31/19.

SHOW ALL COMPUTATIONS.

Answer 1

Lease amortization table

A	B= D-C	C= E*10%	D	E=E-B
Period	Decrease in Value	Interest @10%	Annuity	Carrying value
Dec 31,2018				$ 208,493
Dec 31,2018	$ 50,000	-	$ 50,000	$ 158,493
Dec 31, 2019	$ 34,151	$15,849	$50,000	$124,342
Dec 31,2020	$37,566	$12,434	$50,000	$ 86,777

Calculations:

Decrease in Value = ($) 50,000-15,849 =$ 34,151 and so on

Interest = 10% of carrying value i.e. 10% of 158,493 =15,849 and so on

Carrying value = carrying value - decrease in value

=($) 208,493- 50,000 =$ 158,493 and so on

Journal entries

Date	Account Title and explanation	Debit ($)	Credit ($)
12/31/18	Lease Equipment	208,493
	Lease Liability		208,493
	( to record the lease)
12/31/18	Lease liability	50,000
	Cash		50,000
	(to record the first lease Annuity payment)
12/31/19	Lease Liability	34,151
	Interest Expense	15,849
	Cash		50,000
	(to record the next Annuity payment)
12/31/19	Depreciation expenses (208,493/5)	41,699
	Accumulated depreciation		41,699
	(to record the deprecation on Lease payment)

Note: Answer can be rounded as per requirement