Timmer Company signs a lease agreement dated January 1, 2013, that provides for

Question

Timmer Company signs a lease agreement dated January 1, 2013, that provides for it to lease equipment from Landau Company beginning January 1, 2013. The lease terms, provisions, and related events are as follows: The lease is noncancelable and has a term of 5 years. The annual rentals are $83,222.92, payable at the end of each year, and provide Landau with a 12% annual rate of return on its net investment. Timmer agrees to pay all executory costs at the end of each year. In 2013, these were insurance, $3,760; property taxes, $5,440. In 2014: insurance, $3,100; property taxes, $5,330. There is no renewal or bargain purchase option. Timmer estimates that the equipment has a fair value of $300,000, an economic life of 5 years, and a zero residual value. Timmer's incremental borrowing rate is 16%, it knows the rate implicit in the lease, and it uses the straightline method to record depreciation on similar equipment

Prepare journal entries on the books of Timmer for 2013 and 2014.

I've prepared how the spread sheet is on this question and only need the questions to the ? mark. Thanks for you help!

2013 Jan 1 Leased Equipment 300,000

2013 Jan 1 Lease Equipment 300,000

Dec 31 Capital Lease Obligation 47,222.92

Dec 31 Interest Expense 36,000

Dec 31 Cash 83,222.92

Executory Costs: Insurance Expense $3,760

Executory Costs: Property Tax Expense $5,440

Executory Costs: Cash ?

Depreciation: Depreciation Expense: Leased Equipment ?

Depreciation: Accumulated Depreciation: Leased Equipment ?

2014 Dec 31 Payment: Capital Lease Obligation 52,889.67

2014 Dec 31 Payment: Interest Expense 30,333.25

2014 Dec 31 Payment: Cash 83,222.92

Dec 31 Executory Costs: Insurance Expense 3,100

Dec.31 Executory Costs: Propety Tax $5,330

Dec.31 Executory Costs: Cash ?

Depreciation: Depreciation Expense: Leased Equipment ?

Depreciation: Accumulated Depreciation: Leased Equipment ?

Explanation / Answer

2013

Executory Costs: Cash = Insurance Expense $3,760+Property Tax Expense $5,440 =$9200

Depreciation: Depreciation Expense: Leased Equipment = $300,000/5years= $60,000

2014

Executory Costs: Cash = Insurance Expense $3,100+Property Tax Expense $5,330=$8,430

Depreciation: Depreciation Expense: Leased Equipment = $300,000/5years= $60,000

Accumulated Depreciation= $60,000 (2013)+$60,000=$120,000

1.    Present value    = Lease payments x PV factor for 5 rents at 12%       (asset and liab) = $83,222.92 x 3.604776    300,000.0

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