Question

Grichuk Power leased high-tech electronic equipment from Kolten Leasing on January 1, 2018. Kolten purchased the equipment from Wong Machines at a cost of $250,000, its fair value. (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 lease payments $15,000 at Jan. 1, 2018, and at Mar. 31, June 30, Sept. 30, and Dec. 31 thereafter. Economic life of asset 5 years Interest rate charged by the lessor 8% Required: Prepare a lease amortization schedule and appropriate entries for Grichuk Power from the commencement of the lease through December 31, 2018. December 31 is the fiscal year end for each company. Appropriate adjusting entries are recorded at the end of each quarter.

Amort Schedule

General Journal

Prepare a lease amortization schedule for the term of the lease for Grichuk Power from the commencement of the lease through December 31, 2018. December 31 is the fiscal year end for each company. (Round your intermediate calculations to the nearest whole dollar amount. Enter all amounts as positive values.)

	Payment Date Lease Payments Effective Interest Decrease in Balance Lease Balance 01/01/2018 04/01/2018 07/01/2018 10/01/2018 01/01/2019 04/01/2019 07/01/2019 10/01/2019 Total $0 $0 $0

journal entries:

1 )Record the beginning of the lease for Grichuk Power.

2)Record the quarterly rental paid by Grichuk Power.

3)Record the quarterly rental and interest paid by Grichuk Power.

4 ) Record the amortization of Right-of-use equipment for Grichuk Power.

Answer 1

1. Prepare a lease amortization schedule for the term of the lease for Grichuk Power from the commencement of the lease through December 31, 2018. December 31 is the fiscal year end for each company

Answer:

Amortization Schedule

Payment Date	Lease Payments	Effective Interest	Decrease in Balance	Lease Balance
				112,080
01-01-18	15,000		15,000	97,080
04-01-18	15,000	1,942	13,058	84,021
07-01-18	15,000	1,680	13,320	70,702
10-01-18	15,000	1,414	13,586	57,116
01-01-19	15,000	1,142	13,858	43,258
04-01-19	15,000	865	14,135	29,123
07-01-19	15,000	582	14,418	14,706
10-01-19	15,000	294	14,706	0
Total	$120,000	$7,920	$112,080

Calculation

First we need to calculate the present value of lease payments.

Present Value of Lease Payments:

PV of an annuity due = 7.47199

Calculated by:

n = 8

rate = 8%/4 = 2% as the lease calls for quarterly payments

Present Value of Lease Payments = 15,000 * 7.47199 = 112,080

Lease Payments = 15,000 need to be recorded throughout the periods

Lease Balance =Previous Lease Balance - Decrease in Balance = 112,080 - 15,000 = 97,080

This also need to be calculated throughout the periods with the corresponding value for the periods.

March 31, 2018 :

Lease Balance =  $112,080 – 15,000 = $97,080

So,

Interest expense = 97,080 * 2% = 1941.60 = 1942 (rounded)
Amortization expense: ($15,000 – 1942 ) = $13,058.

These calculations are repeated until 10/01/2019 where the lease balance become zero.

2. Appropriate adjusting entries are recorded at the end of each quarter.

Answer:

General Journal

No	Date	General Journal	Debit	Credit
1	01-Jan-18	Right-of-use asset	112,080
		Lease payable		112,080
		To record the beginning of the lease
2	01-Jan-18	Lease payable	15,000
		Cash		15,000
		To record the quarterly rental paid
3	31-Mar-18	Interest expense	1,942
		Lease payable	13,058
		Cash		15,000
		To record the quarterly rental and interest paid
4	31-Mar-18	Amortization expense	13,058
		Right-of-use asset		13,058
		To record the amortization of Right-of-use equipment

Explanation:

With the calculations made for amortization schedule, we could record the journal entries.