1- On January 1, 2018, Nate Staheli Corporation leased farm equipment from Angie
ID: 2338269 • Letter: 1
Question
1- On January 1, 2018, Nate Staheli Corporation leased farm equipment from Angie Staheli Company. Angie Staheli Company purchased the equipment from Mary Esther Corporation at a cost of $718,618. Assume the lease includes six annual payments beginning January 1, 2018, and at each December 31 thereafter through 2022. At the end of the six-year lease term ending December 31, 2023, the equipment is expected to have a residual value of $100,000. The estimated useful life of the equipment is seven years. a- If the six lease payments are of an equal amount, what payment would provide Angie b- c- d- Staheli Company with a return of 10% Prepare an amortization schedule for the Lessor? Prepare journal entries for the Lessee and the Lessor as of January 1, 2018. Prepare journal entry for the Lessor as of December 31, 2023. Explain how this would be different if there was not a guaranteed residual value of $100,000, rather there was bargain purchase option of $100,000. 2-Explanation / Answer
As per policy, we cannot able to post solution more than four sub parts of question.
Answer 1
Year
Remarks
Discount factor @ 10%
0
At the beginning of 2018
1.000000
1
At the end of 2018
0.909091
2
At the end of 2019
0.826446
3
At the end of 2020
0.751315
4
At the end of 2021
0.683013
5
At the end of 2022
0.620921
Total discount factor @ 10%
4.790787
Discount factor for at end of sixth year (0.620921/1.10)
0.564474
Cost of farm equipment
718618.00
Less: present value of residual value (100000*0.564474)
-56447.40
Present value recover through lease payment
662170.60
Total discount factor @ 10%
4.790787
Annual lease payment (662170.6/4.790787)
138217.51
Answer 2
Amortization schedule for lessor
Date
Beginning lease receivable
Cash receipt
Interest revenue (beginning lease receivable *10%)
Reduction in lease receivable (cash receipt - interest revenue)
Ending lease receivable (beginning lease receivable - reduction in lease receivable)
01-Jan-18
718618
138217.51
138217.51
580400.49
31-Dec-18
580400.49
138217.51
58040.05
80177.46
500223.04
31-Dec-19
500223.04
138217.51
50022.3
88195.20
412027.83
31-Dec-20
412027.83
138217.51
41202.78
97014.72
315013.11
31-Dec-21
315013.11
138217.51
31501.31
106716.20
208296.92
31-Dec-22
208296.92
138217.51
20829.69
117387.81
90909.10
31-Dec-23
90909.10
100000
9090.91
90909.09
0.01
At end of lease period, ending lease receivable must be zero. Interest not applicable on 01-jan-2018.
Differences 0.01 arise due to decimal point.
Answer 3
Journal entries
In books of lessee
Date
Account title
Debit
Credit
01-Jan-18
Leased assets
718618
Lease payable
718618
(To record lease agreement on farm equipment.)
01-Jan-18
Lease payable
138217.51
Cash
138217.51
(To record lease first installment paid.)
Answer 4
Journal entries
In books of lessor
Date
Account title
Debit
Credit
01-Jan-18
Lease receivable
718618
Equipment
718618
(To record lease agreement on farm equipment.)
01-Jan-18
Cash
138217.51
Lease receivable
138217.51
(To record lease first installment paid.)
31-Dec-23
Cash
100000
Interest revenue
90909.09
Lease receivable
9090.91
(To record residual value of farm equipment.)
As per policy, we cannot able to post solution more than four sub parts of question.
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