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

Answer:

a)

A	B=D-C	C=E*10%	D	E =E-B
Period	Decrease in Value	Interest	Annuity	Carrying Value
Dec.31,2018				$208,493
Dec.31,2018	$50,000	-	$50,000	$158,493
Dec.31,2019	$34,151	$15,849	$50,000	$124,342
Dec.31,2020	$37,566	$12,434	$50,000	$86,777
Dec.31,2021	$41,322	$8,678	$50,000	$45,454
Dec.31,2022	$45,455	$4,545	$50,000	$-0

b)

Journal Entries
Date	Account Title & Explanation	Debit ($)	Credit ($)
12/31/2018	Lease Equipment	208,493
	Lease Liability		208,493
	(To record the Lease)
12/31/2018	Lease Liability	50,000
	Cash		50,000
	(To record the first lease annuity payment)
12/31/2019	Lease Liability (Refer Sch.)	34,151
	Interest Expense (Refer Sch.)	15,849
	Cash		50,000
	(To record the Second lease annuity payment)
12/31/2019	Depreciation Expense (208493)/5	41,699
	Accumulated depreciation -Lease Equipment		41,699
	(To record the depreciation on lease equipment)