Question

Edison Leasing leased high-tech electronic equipment to Manufacturers Southern on January 1, 2021. Edison purchased the equipment from International Machines at a cost of $124,782. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Related Information:
Lease term	2 years (8 quarterly periods)
Quarterly rental payments	$16,700 at the beginning of each period
Economic life of asset	2 years
Fair value of asset	$124,782
Implicit interest rate	8%
(Also lessee’s incremental borrowing rate)

Required:
Prepare a lease amortization schedule and appropriate entries for Edison Leasing from the beginning of the lease through January 1, 2022. Edison’s fiscal year ends December 31.

Answer 1

Answer
Payment date	lease payment	interest expense	decrease in balance	lease balance
				$                            124,782
1	$           16,700		$                       16,700	$                            108,082
				(124782-16700)
2	$           16,700	2162 (108082*8%/4)	$                       14,538	$                              93,544
			(16700-2162)	(108082-14538)
3	$           16,700	$                                 1,871	$                       14,829	$                              78,715
		(93544*8%/4)	(16700-1871)	(93544-14829)
4	$           16,700	$                                 1,574	$                       15,126	$                              63,589
		(78715*8%/4)	(16700-1574)	(78715-15126)
5	$           16,700	$                                 1,272	$                       15,428	$                              48,161
		(63589*8%/4)	(16700-1272)	(63589-15428)
6	$           16,700	$                                    963	$                       15,737	$                              32,424
		(48161*8%/4)	(16700-963)	(48161-15737)
7	$           16,700	$                                    648	$                       16,052	$                              16,372
		(32424*8%/4)	(32424-648)	(16700-16052)
8	$           16,700	$                                    328	$                       16,372	$                                     -
		Balancing figure	(equal to 7th lease balance)
		16700-16372
Total	$         133,600	$                                 8,728	$                     124,872

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