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 $127,024. (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	$17,000 at the beginning of each period
Economic life of asset	2 years
Fair value of asset	$127,024
Implicit interest rate	8%
(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

1	Quarterly Interest Rate	0.02	8%/4
	Lease Amortization Schedule
	Period	Lease Payments	Interest Expense	Decrease in Balance	Lease Balance
					$127,024
	1	$17,000		$17,000	$110,024
	2	$17,000	$2,200	$14,800	$95,224
	3	$17,000	$1,904	$15,096	$80,129
	4	$17,000	$1,603	$15,397	$64,732
	5	$17,000	$1,295	$15,705	$49,026
	6	$17,000	$981	$16,019	$33,007
	7	$17,000	$660	$16,340	$16,667
	8	$17,000	$333	$16,667	$0
		$136,000	$8,976	$127,024
	Interest Expense = Lease Balance*Quarterly Interest Rate
2
	Date	Particulars	Debit	Credit
	01.01.2018	Lease Receivable	$127,024
		To Inventory of Equipment		$127,024
		(Being Lease receivable)
	01.01.2019	Cash	$17,000
		To Lease Receivable		$17,000
		(Lease received for Jan-Mar quarter)
	31.03.2019	Cash	$17,000
		To Interest revenue		$2,200
		To Lease receivable		$14,800
		(Lease Received for April-June quarter)
	30.06.2019	Cash	$17,000
		To Interest revenue		$1,904
		To Lease receivable		$15,096
		(Lease Received for July-Sept quarter)
	30.09.2019	Cash	$17,000
		To Interest revenue		$1,603
		To Lease receivable		$15,397
		(Lease Received for Oct-Dec quarter)
	31.12.2019	Cash	$17,000
		To Interest revenue		$1,295
		To Lease receivable		$15,705
		(Lease Received for Jan-Mar quarter)