In: Accounting
On January 1, 2016, Ballieu Company leases specialty equipment with an economic life of 8 years to Anderson Company. The lease contains the following terms and provisions
: • The lease is noncancelable and has a term of 8 years.
• The annual rentals are $31,000, payable at the beginning of each year.
• The interest rate implicit in the lease is 12%. • Anderson agrees to pay all executory costs and is given an option to buy the equipment for $1 at the end of the lease term, December 31, 2024.
•The cost of the equipment to the lessor is $162,500, and the fair retail value is approximately $172,500. • The lessor incurs no material initial direct costs.
• The collectibility of the rentals is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor.
• The lessor estimates that the fair value is expected to be significantly greater than $1 at the end of the lease term.
The lessor calculates that the present value on January 1, 2016 of 8 annual payments in advance of $31,000 discounted at 12% is $172,476.47 (the $1 purchase option is ignored as immaterial).
Required: 2. Prepare all the journal entries for Ballieu for the years 2016 and 2017.
There are 9 journal entires for 20116 and 4 for 2017
Thank you for you help
Lease amortization schedule | ||||
Year | Annual Payment | Factor | Present worth | Interest |
0 | 31000 | 1 | 31000 | 0 |
1 | 31000 | 0.892857143 | 27678.5714 | 3321.429 |
2 | 31000 | 0.797193878 | 24713.0102 | 6286.99 |
3 | 31000 | 0.711780248 | 22065.1877 | 8934.812 |
4 | 31000 | 0.635518078 | 19701.0604 | 11298.94 |
5 | 31000 | 0.567426856 | 17590.2325 | 13409.77 |
6 | 31000 | 0.506631121 | 15705.5648 | 15294.44 |
7 | 31000 | 0.452349215 | 14022.8257 | 16977.17 |
8 | ||||
Total | 172476.453 |
Amount in $ | ||||
Date | General Journal | Debit | Credit | |
January 1 2016 | Lease Receivable | 172500 | ||
Profit on sale of Leased asset | 10000 | |||
Leased asset | 162500 | |||
To record the inception of lease | ||||
January 1 2016 | Cash | 31000 | ||
Lease Receivable | 31000 | |||
To record the receipt of annual Payment towards lease | ||||
December 31, 2016 | Lease receivable | 3321.43 | ||
Interest revenue | 3321.43 | |||
To record the interest revenue in lease transaction. | ||||
January 1 2017 | Cash | 31000 | ||
Lease receivable | 31000 | |||
To record the receipt of annual Payment towards lease | ||||
December 31, 2017 | Lease receivable | 6286.99 | ||
Interest revenue | 6286.99 | |||
To record the interest revenue in lease transaction. | ||||