Question

Edison Leasing leased high-tech electronic equipment to Manufacturers Southern on January 1, 2018. Edison purchased the equipment from International Machines at a cost of $123,651. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Related Information:
Lease term	2 years (8 quarterly periods)
Quarterly rental payments	$16,000 at the beginning of each period
Economic life of asset	2 years
Fair value of asset	$123,651
Implicit interest rate	4%
(Also lessee’s incremental borrowing rate)

Required:
Prepare a lease amortization schedule and appropriate entries for Edison Leasing from the beginning of the lease through January 1, 2019. Edison’s fiscal year ends December 31.

Answer 1

Amortization Schedule
Payment date	Lease Payment	Interest Expenses	Decrease in Balance	Lease Balance
				$        123,651
1	$         16,000	$              -	$               16,000	$        107,651
2	$         16,000	$       1,077	$               14,923	$          92,728
3	$         16,000	$           927	$               15,073	$          77,655
4	$         16,000	$           777	$               15,223	$          62,431
5	$         16,000	$           624	$               15,376	$          47,056
6	$         16,000	$           471	$               15,529	$          31,526
7	$         16,000	$           315	$               15,685	$          15,841
8	$         16,000	$           158	$               15,842	$                  (0)
Total	128000	4349	123651

Journal Entries
1/1/2018	Right of use equipment	$        123,651
	To lease Payable		$        123,651
1/1/2018	Lease Payable	$          16,000
	To Cash		$          16,000
31/03/2018	Lease Payable	$          14,923
	Interest Expenses	$            1,077
	To Cash		$          16,000
31/03/2018	Amortization expenses *	$          15,456
	To Right of Use Equipment		$          15,456
30/06/2018	Lease Payable	$          15,073
	Interest Expenses	$                927
	To Cash		$          16,000
30/06/2018	Amortization expenses *	$          15,456
	To Right of Use Equipment		$          15,456
30/09/2018	Lease Payable	$          15,223
	Interest Expenses	$                777
	To Cash		$          16,000
30/09/2018	Amortization expenses *	$          15,456
	To Right of Use Equipment		$          15,456
31/12/2018	Lease Payable	$          15,376
	Interest Expenses	$                624
	To Cash		$          16,000
31/12/2018	Amortization expenses *	$          15,456
	To Right of Use Equipment		$          15,456
* Amortization Expenses = 123651/8     = 15456