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On January 1, 2020, Suncadia (lessee) leased 100 golf carts from the manufacturer, Yakima Inc. (lessor)...

On January 1, 2020, Suncadia (lessee) leased 100 golf carts from the manufacturer, Yakima Inc. (lessor) for a 7-year period.

Pertinent information follows:

  • Lease term is 7 years.
  • The first annual payment of $30,000 is due at the inception of the lease.
  • The remaining annual lease payments are all at 31 December each year.
  • At the end of the lease term, Suncadia can buy the golf carts at a price below the fair value of the golf carts.
  • Suncadia’s year end is December 31. The estimated useful life of the golf carts is 10 years.
  • Suncadia’s borrowing rate is 6%.
  • Fair value of the golf carts is $190,000.

Required:

  1. Calculate the present value of the lease payments.
  2. Prepare the amortization table.
  3. Classify the lease agreement.
  4. Prepare the journal entry(ies) for the lessor and the lessee for the 2020 fiscal year related to the lease arrangement.

Solutions

Expert Solution

(a)

(b)

(c) Finance Lease is the lease where right and liability attached to the asset is transferred to lessee from lessor. Where lease term of asset majorly covers the useful life of asset then such lease agreement shall be classified as finance lease.

In the given situation lease term is 7 years and useful life of asset is 10 years. Hence such lease agreement shall be classified as finance lease.

(d)

Note: In case of finance lease depreciation expense shall be claimed by lessee.

ekkarill92 answered 1 year ago
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