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.

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

Record Brampton’s (Lessor) journal entries for 12/31/18 & 12/31/19.

Answer 1

MALTON CORPORATION (Lessee)
Lease Amortization Schedule
	A	B	C = A -B	Previous year Bal. - C
Date	Annual Lease Payment	Interest on (previous year lease liability x 10%) Liability	Reduction of Lease Liability	Lease Liability
Dec 31, 2018				$208,493
Dec 31, 2018	$50,000		$50,000	$158,493
Dec 31, 2019	$50,000	$15,849.3	$34,150.7	$124,342.3
Dec 31, 2020	$50,000	$12,434.23	$37,565.77	$86,776.53
Dec 31, 2021	$50,000	$8,677.65	$41,322.35	$45,454.18
Dec 31, 2022	$50,000	$4,545.42	$45,454.58	-$0.4
b)
Date	Account Titles and Explanation	Debit	Credit
Dec 31, 2018	Leased Equipment Under Capital Leases	$208,493
	Lease Liability		$208,493
	(To record the lease.)
	Lease Liability	$50,000
	Cash		$50,000
	(To record the first lease payment.)
Dec 31, 2019	Interest Expense	$15,849.3
	Interest Payable		$15,849.3
	(To record interest.)
Dec 31, 2019	Interest Expense	$15,849.3
	Lease Liability	$34,150.7
	Cash		$50,000
	(To record second lease payment)
	Depreciation Expense(208493/5)	$41,699
	Accumulated Depreciation— Capital Leases		$41,699
	(To record Amortization.)