Exercise 21-7 On January 1, 2017, Concord Company leased equipment to Marigold C

Question

Exercise 21-7 On January 1, 2017, Concord Company leased equipment to Marigold Corporation. The following information pertains to this lease 1. The term of the noncancelable lease is 6 years, with no renewal option. The equipment reverts to the lessor at the termination of the lease. 2. Equal rental payments are due on January 1 of each year, beginning in 2017. 3. The fair value of the equipment on January 1, 2017, is $128,000, and its cost is $102,400. 4. The equipment has an economic life of 8 years, with an unguaranteed residual value of $8,000. Marigold depreciates all of its equipment on a straight-line basis. 5 Concord set the annual rental to ensure an 11% rate o return. Marigolds incremental borrowing rate is 12% an then picit rate ofti e essor, s unknown 6 Collectibility o ease payments is reasonably predictable, and no important uncertainties surround the amount of costs etto be incurred the essor. (Both the lessor and the lessee's accounting period ends on December 31.) Click here to view factor tables Calculate the amount of the annual rental payment. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to O dec The amount of the annual rental payments

Explanation / Answer

Computation of Annual Lease Rent Total Amount to be recovered $128,000 Less: Present Value of Residual( $8000*0.5364) 4291 Present value of Payemnt $123,709 PVF @11% at the end of 6 Year (0-5)            4.6959 Annual Rent Required $26,344 Journal Entry Date Account Tittle & Explanation Debit Credit 1-Jan Leased Equipment    ($26344*4.60478) $121,308.00 Lease Liability $121,308.00 To Record Lease 1-Jan Lease Liability $26,344.00 Cash $26,344.00 To Record Lease rental Payment made 31-Dec Interest Expense ($121308-$26344)*0.12) $11,396.00 Interest Payable $11,396.00 To Record Interest expense 31-Dec Depreciation Expense $20,218.00 Accumulated Depreciationof Leased Equipment $20,218.00 ( $121308/6) To Record Amortisation Expense Journal Entry Date Account Tittle & Explanation Debit Credit 1-Jan Lease Receivable $128,000.00 Cost of Goods Sold $102,400.00 Sales Revenue $102,400.00 Inventory $128,000.00 To Record Leased Receivable 1-Jan Cash $26,344.00 Lease Receivable $26,344.00 To Record Lease rental received 31-Dec Interest Receivable ($128000-$26344)*0.11 $11,182.00 Interest Revenue $11,182.00 To Record Interest Revenue

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