Lucas, Inc. Lessor\'s Lease Amortization Schedule Anual Date Annual Lease Paymen
ID: 2451904 • Letter: L
Question
Lucas, Inc.
Lessor's Lease Amortization Schedule Anual
Date
Annual
Lease Payment
Interest on
Lease Receivable
Lease Receivable
Recovery
Lease
Receivable
Date
Account Titles and Explanation
Debit
Credit
Jan. 1, 2015
(To record receipt of the first lease payments.)
Dec. 31, 2015
(To record interest earned during the first year of the lease.)
Lucas, Inc. enters into a lease agreement as lessor on January 1, 2015, to lease an airplane to National Airlines. The term of the noncancelable lease is 9 years and all payments should be required at the beginning of the year. The following information relates to this agreement:1. National Airlines has the option to purchase the airplane for $12,001,300 when the lease expires at which time the fair value is expected to be $20,000,500. 2. The airplane has a cost of $51,000,800 to Lucas, an estimated useful life of 13 years, and a salvage value of zero at the end of that time (due to technological obsolescence). 3. National Airlines will pay all executory costs related to the leased airplane. 4. Annual beginning of year lease payments of $6,598,375 allow Lucas to earn an 8% return on its investment. 5. Collectibility of the payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by Lucas.
Explanation / Answer
As the risk and rewards are not transferred completely to the lessee. Also there is option to purchase at the end of lease period it is an operating lease.
As the risk and rewards are not transferred completely to the lessee. Also there is option to purchase at the end of lease period it is an operating lease.
Date Annual Interest on Lease Receivable Lease Lease Payment Lease Receivable Recovery Receivable 1/1/2015 Lease receivable - assumed lease period is for two years 13,196,750.00 1/1/2015 first lease payment 5,542,635.00 1,055,740.00 6,598,375.00 6,598,375.00 1/1/2016 6,070,505.00 527,870.00 6,598,375.00 -Related Questions
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