Question

The following facts pertain to a noncancelable lease agreement between Martinez Leasing Company and Sandhill Company, a lessee.

Inception date: May 1, 2017

Annual lease payment due at the beginning of

each year, beginning with May 1, 2017 $24,084.20

Bargain-purchase option price at end of lease term $3,700

Lease term 5 years

Economic life of leased equipment 10 years

Lessor’s cost $69,000

Fair value of asset at May 1, 2017 $101,000

Lessor’s implicit rate 11 %

Lessee’s incremental borrowing rate 11 %

The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs.

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Compute the amount of the lease receivable at the inception of the lease. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and Round answers to 2 decimal places, e.g. 16.25.)

Lease receivable at inception

$

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Prepare a lease amortization schedule for Martinez Leasing Company for the 5-year lease term. (Round answers to 2 decimal places, e.g. 16.25.)

MARTINEZ LEASING COMPANY (Lessor)

Lease Amortization Schedule

Date

Annual Lease Payment Plus

BPO

Interest on Lease

Receivable

Recovery of Lease

Receivable

Lease Receivable

5/1/17

$

$

$

$

101,000

5/1/17

$

$

0

$

5/1/18

5/1/19

5/1/20

5/1/21

4/30/22

$

$

$

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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 2017, 2018, and 2019. The lessor’s accounting period ends on December 31. Reversing entries are not used by Martinez. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 16.25.)

Date

Account Titles and Explanation

Debit

Credit

5/1/17

(To record the lease.)

(To record lease payment. )

Answer 1