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On January 1 of Year 1, Kamili Company leased a truck for a 7-year period under...

On January 1 of Year 1, Kamili Company leased a truck for a 7-year period under a capital lease and agreed to pay an annual lease payment of $6,000 at the end of each year. The interest rate associated with this capital lease is 12% compounded annually. On December 31 of Year 1,the first $6,000 payment was made as scheduled. The entry to record the payment of the first $6,000 payment on December 31 of Year 1includes

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Year 1 Journal entry for Lease Payment

Date

General Journal

Debit

Credit

December 31.

Lease Obligation

$ 2,714.10

Interest Expense

$ 3,285.90

             Cash

$ 6,000.00

(Lease installment paid in year 1)

Working note 1

Calculation of Present value of minimum lease payments

Year

Lease payments

PV Factor @ 12%

Discounted payments

1

$ 6,000.00

0.892857

$    5,357.14

2

$ 6,000.00

0.797194

$    4,783.16

3

$ 6,000.00

0.711780

$    4,270.68

4

$ 6,000.00

0.635518

$    3,813.11

5

$ 6,000.00

0.567427

$    3,404.56

6

$ 6,000.00

0.506631

$    3,039.79

7

$ 6,000.00

0.452349

$    2,714.10

Present value of Minimum lease payments

$ 27,382.54

Working note 2

Date

Description

Lease Paymens

Lease Obligation

Amount of Imstallment

Interest Expense

Principal

January 1        year 1

Initial Balance

$    27,382.54

December 31 year 1

Payment

$ 6,000.00

$    3,285.90*

$ 2,714.10**

$    24,668.44

December 31 year 2

Payment

$ 6,000.00

$    2,960.21

$ 3,039.79

$    21,628.66

December 31 year 3

Payment

$ 6,000.00

$    2,595.44

$ 3,404.56

$    18,224.10

December 31 year 4

Payment

$ 6,000.00

$    2,186.89

$ 3,813.11

$    14,410.99

December 31 year 5

Payment

$ 6,000.00

$    1,729.32

$ 4,270.68

$    10,140.31

December 31 year 6

Payment

$ 6,000.00

$    1,216.84

$ 4,783.16

$      5,357.14

December 31 year 7

Payment

$ 6,000.00

$       642.86

$ 5,357.14

$                   -  

*$27382x12%

**$6000-$3285.90

ekkarill92 answered 9 months ago
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