In: Accounting
On January 1st you sold and purchased a capital lease for a 10 year period. The yearly annuity due payments were $100,000 with guaranteed salvage value of $75,000 and bargain purchase options of $100,000. The discount rate s 6%. The title has transferred and the transaction qualifies for capital purchase. Prepare a journal entries for 10 years for both buyer and seller as a sales type lease. Cost of goods sold is 75% of sales price.
In the Books of Buyer | |||
Date | Account description | Debit | Credit |
1-Jan | Lease Assets | 833,728 | |
Lease Obligation | 833,728 | ||
(Being Lease Recorded) | |||
31-Dec | Lease Obligation | 49,976 | |
Depreciation of Lease Assets | 75,873 | ||
Interest Expenses | 50,024 | ||
Cash | 100,000 | ||
Accumulated Depreciation | 75,873 | ||
(Lease Payment Recorded) | |||
31-Dec | Lease Obligation | 52,975 | |
Depreciation of Lease Assets | 75,873 | ||
Interest Expenses | 47,025 | ||
Cash | 100,000 | ||
Accumulated Depreciation | 75,873 | ||
(Lease Payment Recorded) | |||
31-Dec | Lease Obligation | 56,153 | |
Depreciation of Lease Assets | 75,873 | ||
Interest Expenses | 43,847 | ||
Cash | 100,000 | ||
Accumulated Depreciation | 75,873 | ||
(Lease Payment Recorded) | |||
31-Dec | Lease Obligation | 59,523 | |
Depreciation of Lease Assets | 75,873 | ||
Interest Expenses | 40,477 | ||
Cash | 100,000 | ||
Accumulated Depreciation | 75,873 | ||
(Lease Payment Recorded) | |||
31-Dec | Lease Obligation | 63,094 | |
Depreciation of Lease Assets | 75,873 | ||
Interest Expenses | 36,906 | ||
Cash | 100,000 | ||
Accumulated Depreciation | 75,873 | ||
(Lease Payment Recorded) | |||
31-Dec | Lease Obligation | 66,880 | |
Depreciation of Lease Assets | 75,873 | ||
Interest Expenses | 33,120 | ||
Cash | 100,000 | ||
Accumulated Depreciation | 75,873 | ||
(Lease Payment Recorded) | |||
31-Dec | Lease Obligation | 70,892 | |
Depreciation of Lease Assets | 75,873 | ||
Interest Expenses | 29,108 | ||
Cash | 100,000 | ||
Accumulated Depreciation | 75,873 | ||
(Lease Payment Recorded) | |||
31-Dec | Lease Obligation | 75,146 | |
Depreciation of Lease Assets | 75,873 | ||
Interest Expenses | 24,854 | ||
Cash | 100,000 | ||
Accumulated Depreciation | 75,873 | ||
(Lease Payment Recorded) | |||
31-Dec | Lease Obligation | 79,655 | |
Depreciation of Lease Assets | 75,873 | ||
Interest Expenses | 20,345 | ||
Cash | 100,000 | ||
Accumulated Depreciation | 75,873 | ||
(Lease Payment Recorded) | |||
31-Dec | Lease Obligation | 84,434 | |
Depreciation of Lease Assets | 75,873 | ||
Interest Expenses | 15,566 | ||
Cash | 100,000 | ||
Accumulated Depreciation | 75,873 | ||
(Lease Payment Recorded) | |||
31-Dec | Lease Obligation | 175,000 | |
Cash | 175,000 | ||
(Paid for Purchase of Assets and Salavge Value Payment) |
In the Books of Seller | |||
Date | Account description | Debit | Credit |
1-Jan | Lease Receivable | 833,728 | |
To Assets | 833,728 | ||
(Being Lease Recorded) | |||
31-Dec | Cash | 100,000 | |
Interest Income | 50,024 | ||
Lease Receivable | 49,976 | ||
(Being Lease Income Recorded) | |||
31-Dec | Cash | 100,000 | |
Interest Income | 47,025 | ||
Lease Receivable | 52,975 | ||
(Being Lease Income Recorded) | |||
31-Dec | Cash | 100,000 | |
Interest Income | 43,847 | ||
Lease Receivable | 56,153 | ||
(Being Lease Income Recorded) | |||
31-Dec | Cash | 100,000 | |
Interest Income | 40,477 | ||
Lease Receivable | 59,523 | ||
(Being Lease Income Recorded) | |||
31-Dec | Cash | 100,000 | |
Interest Income | 36,906 | ||
Lease Receivable | 63,094 | ||
(Being Lease Income Recorded) | |||
31-Dec | Cash | 100,000 | |
Interest Income | 33,120 | ||
Lease Receivable | 66,880 | ||
(Being Lease Income Recorded) | |||
31-Dec | Cash | 100,000 | |
Interest Income | 29,108 | ||
Lease Receivable | 70,892 | ||
(Being Lease Income Recorded) | |||
31-Dec | Cash | 100,000 | |
Interest Income | 24,854 | ||
Lease Receivable | 75,146 | ||
(Being Lease Income Recorded) | |||
31-Dec | Cash | 100,000 | |
Interest Income | 20,345 | ||
Lease Receivable | 79,655 | ||
(Being Lease Income Recorded) | |||
31-Dec | Cash | 100,000 | |
Interest Income | 15,566 | ||
Lease Receivable | 84,434 | ||
(Being Lease Income Recorded) | |||
31-Dec | Cash | 175,000 | |
Lease Receivable | 175,000 | ||
(Sale of Assets) |
Workings:
Cashflow | PV Factor | Present Value | |
1 | 100,000 | 0.943396 | 94,340 |
2 | 100,000 | 0.889996 | 89,000 |
3 | 100,000 | 0.839619 | 83,962 |
4 | 100,000 | 0.792094 | 79,209 |
5 | 100,000 | 0.747258 | 74,726 |
6 | 100,000 | 0.704961 | 70,496 |
7 | 100,000 | 0.665057 | 66,506 |
8 | 100,000 | 0.627412 | 62,741 |
9 | 100,000 | 0.591899 | 59,190 |
10 | 100,000 | 0.558395 | 55,839 |
10 | 75,000 | 0.558395 | 41,880 |
10 | 100,000 | 0.558395 | 55,839 |
833,728 |
Cashflow | Interest | Lease Obligation | Depreciation | |
0 | 833,728 | |||
1 | 100,000 | 50,024 | 783,751 | 75,873 |
2 | 100,000 | 47,025 | 730,777 | 75,873 |
3 | 100,000 | 43,847 | 674,623 | 75,873 |
4 | 100,000 | 40,477 | 615,101 | 75,873 |
5 | 100,000 | 36,906 | 552,007 | 75,873 |
6 | 100,000 | 33,120 | 485,127 | 75,873 |
7 | 100,000 | 29,108 | 414,235 | 75,873 |
8 | 100,000 | 24,854 | 339,089 | 75,873 |
9 | 100,000 | 20,345 | 259,434 | 75,873 |
10 | 275,000 | 15,566 | 0 | 75,873 |
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