Question

On Dec 31, 2018, Malton Corporation signed a five-year noncancelable lease for equipment from Brampton. The terms of the lease called for Malton to make annual payments of $50,000 each Dec 31, beginning with Dec 31, 2018, for five years with the equipment going back to the lessor at the end of this period. The equipment has an estimated useful life of 5 years and no salvage value. Malton accordingly accounts for this lease transaction as a finance lease. The minimum lease payments were determined to have a present value of $208,493 at an effective interest rate of 10%. Brampton manufactured the equipment f0r $150,000.

a. Prepare a lease amortization table for 12/31/18, 12/31/19 & 12/31/20.

b. Record Malton’s (Lessee) journal entries for 12/31/18 & 12/31/19.

SHOW ALL COMPUTATIONS.

Answer 1

a.)

	Opening Balance	Lease Rentals	Interest @10%	Closing Balance
12/31/2018				$          208,493
12/31/2018	$                                                                 208,493	$   50,000	$              -	$          158,493
12/31/2019	$                                                                 158,493	$   50,000	$   15,849	$          124,342
12/31/2020	$                                                                 124,342	$   50,000	$   12,434	$            86,776
12/31/2021	$                                                                   86,776	$   50,000	$     8,678	$            45,454
12/31/2022	$                                                                   45,454	$   50,000	$     4,546	$                       -

b.)

Date	Particulars	Debit	Credit
12/31/2018	Right to Use Asset	$ 208,493
	Lease Obligation		$ 208,493
	(Being lease asset recorded)
12/31/2018	Lease Obligation	$   50,000
	Cash		$   50,000
	(First Lease Rental paid by Malton)
12/31/2019	Interest Expense	$   15,849
	Lease Obligation		$   15,849
	(Being Interest booked on Lease Obligations)
12/31/2019	Depreciation	$   41,699
	Accumulated Depreciation		$   41,699
	(Being Depreciation charged on SLM Basis)
12/31/2019	Lease Obligation	$   50,000
	Cash		$   50,000
	(Second Lease Rental paid by Malton)

Note:- In absence of any chart of accounts, appropriate account titles have been used, which may vary from those that are available or required to be used depending on the country and local GAAP.

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