Question
In: Accounting
The following facts pertain to a non-cancelable lease agreement between Metlock Leasing Company and Ivanhoe Company,...
The following facts pertain to a non-cancelable lease agreement
between Metlock Leasing Company and Ivanhoe Company, a
lessee.
| Commencement date | May 1, 2020 | ||
| Annual lease payment due at the beginning of | |||
| each year, beginning with May 1, 2020 | $15,138.16 | ||
| Bargain purchase option price at end of lease term | $4,000 | ||
| Lease term | 5 | years | |
| Economic life of leased equipment | 10 | years | |
| Lessor’s cost | $50,000 | ||
| Fair value of asset at May 1, 2020 | $68,000 | ||
| Lessor’s implicit rate | 8 | % | |
| Lessee’s incremental borrowing rate | 8 | % |
The collectibility of the lease payments by Metlock is
probable.
1.Compute the amount of the lease receivable at commencement of the lease.
2.Prepare a lease amortization schedule for Metlock for the 5-year lease term.
3.Prepare the journal entries to reflect the signing of the lease agreement and to record the receipts and income related to this lease for the years 2020 and 2021. The lessor’s accounting period ends on December 31. Reversing entries are not used by Metlock.
4.Suppose the collectibility of the lease payments was not probable for Metlock. Prepare all necessary journal entries for the company in 2020
Solutions
Expert Solution
| 1.) | Date | Lease Payment & BPO | Present value @8% | Present Value | ||
| 01-05-2020 | 15,138.16 | 1 | 15,138 | |||
| 01-05-2021 | 15,138.16 | 0.92593 | 14,017 | |||
| 01-05-2022 | 15,138.16 | 0.85734 | 12,979 | |||
| 01-05-2023 | 15,138.16 | 0.79383 | 12,017 | |||
| 01-05-2024 | 15,138.16 | 0.73503 | 11,127 | |||
| 30-04-2025 | 4,000.00 | 0.68058 | 2,722 | |||
| Total | 79,690.80 | 68,000 | ||||
| Lease Receivable is $ 68,000 . | ||||||
| 2.) | Lease Amortization Schedule | |||||
| Date | Lease Receipts (a) | Interest Income (b) | Reduction in Lease Receivable c =(a-b) | Lease Receivable | ||
| 01-05-2020 | 68,000.00 | |||||
| 01-05-2020 | 15,138.16 | - | 15,138.16 | 52,861.84 | ||
| 01-05-2021 | 15,138.16 | 4,228.95 | 10,909.21 | 41,952.63 | ||
| 01-05-2022 | 15,138.16 | 3,356.21 | 11,781.95 | 30,170.68 | ||
| 01-05-2023 | 15,138.16 | 2,413.65 | 12,724.51 | 17,446.17 | ||
| 01-05-2024 | 15,138.16 | 1,395.69 | 13,742.47 | 3,703.70 | ||
| 30-04-2025 | 4,000.00 | 296.30 | 3,703.70 | |||
| Total | 79,690.80 | 11,690.80 | 68,000.00 | |||
| 3.) | Date | Particulars | Debit | Credit | ||
| 01-05-2020 | Lease Receivable | 68,000.00 | ||||
| Cost of Goods sold | 50,000.00 | |||||
| Sales Revenue | 68,000.00 | |||||
| Equipment | 50,000.00 | |||||
| 01-05-2020 | Cash | 15,138.16 | ||||
| Lease Receivable | 15,138.16 | |||||
| 31-12-2020 | Interest Receivable | 2,819.30 | ||||
| Interest Income | 2,819.30 | |||||
| (68,000 - 15,138.16 ) x 8% x 8/12 | ||||||
| 01-05-2021 | Cash | 15,138.16 | ||||
| Lease Receivable | 10,909.21 | |||||
| Interest Receivable | 2,819.30 | |||||
| Interest Income | 1,409.65 | |||||
| 31-12-2021 | Interest Receivable | 2,237.47 | ||||
| Interest Income | 2,237.47 | |||||
| (68,000 - 15,138.16 - 10,909.21 ) x 8% x 8/12 | ||||||
| 4.) | Date | Particulars | Debit | Credit | ||
| 01-05-2020 | Cash | 15,138.16 | ||||
| Deposit Liability | 15,138.16 | |||||
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