Grichuk Power leased high-tech electronic equipment from Kolten Leasing on Janua

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.)

$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.

Explanation / Answer

Lease Period = 2 years

No. of quarterly periods in lease period = 8 periods

Effective interest rate per quarter = Annual rate/Quarterly periods in one year

= 8%/4 = 2% per quarter

Present Value of Lease Payments = Quarterly lease payments*PVAF(2%, 8) (beginning of periods)

= $15,000*7.47199 = $112,080

Lease Amortization Schedule (Amounts in $)

112,080

Journal entries in the books of Grichuk Power   

General Journal (Amounts in $)

Payment Date Lease Payments (A) Effective Interest (B = 2%*C) Decrease in Balance (A - B) Lease Balance (C) 01/01/2018 15,000 0 15,000 112,080 04/01/2018 15,000 1,942 13,058 97,080 07/01/2018 15,000 1,680 13,320 84,022 10/01/2018 15,000 1,414 13,586 70,702 01/01/2019 15,000 1,142 13,858 57,116 04/01/2019 15,000 865 14,135 43,258 07/01/2019 15,000 582 14,418 29,123 10/01/2019 15,000 (15,000-14,705) = 295 (Bal. fig) 14,705 14,705 Total 120,000 7,920

112,080

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