Question

Problem 21A-1 a-c

The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Windsor Company, a lessee.

Commencement date		January 1, 2017
Annual lease payment due at the beginning of    each year, beginning with January 1, 2017		$119,345
Residual value of equipment at end of lease term,    guaranteed by the lessee		$50,000
Expected residual value of equipment at end of lease term		$45,000
Lease term		6	years
Economic life of leased equipment		6	years
Fair value of asset at January 1, 2017		$642,000
Lessor’s implicit rate		7	%
Lessee’s incremental borrowing rate		7	%

.he asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment.

WINDSOR COMPANY (Lessee)
Lease Amortization Schedule
Date		Annual Lease		Interest on		Reduction of Lease		Lease Liability
		Payment Plus GRV		Liability		Liability

1/1/2017
	1/1/2017
1/1/2018
1/1/2019
1/1/2020
1/1/2021
1/1/2022
12/31/2022

Answer 1

Windsor Company
Lessee
Lease Amortization schedule
Date	Annual lease payment plus GRV	Interest on Liability	Reduction on lease liability	Lease Liability
	(a)	(b) = previous year lease liability X 7%	(c) = (a) - (b)	Previous year balance - (c)
1/1/2017				$       6,42,000
1/1/2017	$ 1,19,345	$                    -	$ 1,19,345.00	$ 5,22,655.00
1/1/2018	$ 1,19,345	$     36,585.85	$    82,759.15	$ 4,39,895.85
1/1/2019	$ 1,19,345	$     30,792.71	$    88,552.29	$ 3,51,343.56
1/1/2020	$ 1,19,345	$     24,594.05	$    94,750.95	$ 2,56,592.61
1/1/2021	$ 1,19,345	$     17,961.48	$ 1,01,383.52	$ 1,55,209.09
1/1/2022	$ 1,19,345	$     10,864.64	$ 1,08,480.36	$     46,728.73
12/31/2022	$     50,000	$       3,271.01	$    46,728.73	$                    -
Total	$ 7,66,070	$       1,24,070	$       6,42,000
Workings:
12/31/2022
Residual value given = $50,000