Question

On Dec 31, 2018, Malton Corporation signed a five-year noncancelable lease for equipment from Brampton. The terms of the lease called for Brampton to receive 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. Brampton accordingly accounts for this lease transaction as a sales type 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.

1. Prepare a lease amortization table for 12/31/18, 12/31/19 & 12/31/20.
2. Record Brampton’s (Lessor) journal entries for 12/31/18 & 12/31/19.

Answer 1

a.) Lease amortization Table:-

	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.) Journal entries required are as follows:-

Date	Particulars	Debit	Credit
12/31/2018	Malton Corporation	$ 208,493
	Sales Revenue		$ 208,493
	(Being Sale on credit being recorded)
12/31/2018	Cost of Goods Sold	$ 150,000
	Inventory		$ 150,000
	(Being COGS Booked)
12/31/2018	Cash	$   50,000
	Malton Corporation		$   50,000
	(First Lease Rental Received from Malton)
12/31/2019	Malton Corporation	$   15,849
	Interest Income		$   15,849
	(Being Interest booked on Lease Rentals)
12/31/2019	Cash	$   50,000
	Malton Corporation		$   50,000
	(Second Lease Rental Received from 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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