Question

Bonita Leasing Company signs a lease agreement on January 1, 2017, to lease electronic equipment to Windsor Company. The term of the noncancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement: 1. Windsor Company has the option to purchase the equipment for $17,100 upon termination of the lease. 2. The equipment has a cost and fair value of $166,000 to Bonita Leasing Company. The useful economic life is 2 years, with a salvage value of $17,100. 3. Windsor Company is required to pay $4,900 each year to the lessor for executory costs. 4. Bonita Leasing Company desires to earn a return of 10% on its investment. 5. Collectibility of the payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor.

Answer 1

Year	PV Factor @ 10%
1	0.90909
2	0.82645
Total	1.73554

Present Value of Lease
Cost (Fair Value) of leased asset	$                    166,000
Less: Present value of salvage value (17100*0.82645)	$                      14,132
Present value of annual payments	$                    151,868
Divided by: PV Annuity Factor @ 10% for 2 Years	1.73554
Amount of Lease payment (exclude executory costs)	$                      87,505
Amount of Lease payment (With executory costs) (87505+4900)	$                      92,405

Bonita Leasing Company (Lessor)
Lease Amortization Schedule
Date	Annual Lease Payment (exclude executory costs)	Interest on Lease Receivable	Recovery of Lease Receivable	Balance of Lease Receivable
Jan 1, 2017				$        166,000
Dec 31, 2017	$                      87,505	$           16,600	$        70,905	$          95,095
Dec 31, 2018	$                      87,505	$             9,510	$        77,995	$          17,100
Interest on Lease Receivable = Beginning Balance of Lease Receivable * 10%
Recovery of Lease Receivable = Annual Lease Payment (exclude executory costs) - Interest on Lease Receivable
Balance of Lease Receivable = Beginning Balance of Lease Receivable - Recovery of Lease Receivable

Bonita Leasing Company (Lessor)
Date	General Journal	Debit	Credit
Jan 1, 2017	Lease Receivable	$        166,000
	Equipment		$     166,000
	(To record the lease.)
Dec 31, 2017	Cash	$           92,405
	Executory Costs Payable		$          4,900
	Interest Revenue		$        16,600
	Lease Receivable		$        70,905
	(To record Lease payment received.)
Dec 31, 2018	Cash	$           92,405
	Executory Costs Payable		$          4,900
	Interest Revenue		$          9,510
	Lease Receivable		$        77,995
	(To record Lease payment received.)
Dec 31, 2018	Cash	$           17,100
	Lease Receivable		$        17,100
	(To record to purchase option exercises by Lessee.)