Exercise 21-8 1.Prepare a lease amortization schedule for Rode Company for the 5

Question

Exercise 21-8

1.Prepare a lease amortization schedule for Rode Company for the 5-year lease term.(Round present value factor calculations to 5 decimal places, e.g. 1.25125 and Round answers to 2 decimal places, e.g. 15.25.)

2. Prepare the journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2014 and 2015. Rode’s annual accounting period ends on December 31. Reversing entries are used by Rode. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and Round answers to 2 decimal places, e.g. 15.25.)

Exercise 21-8

The following facts pertain to a noncancelable lease agreement between Mooney Leasing Company and Rode Company, a lessee. Inception date: May 1, 2014 Annual lease payment due at the beginning of    each year, beginning with May 1, 2014 $18,690.33 Bargain-purchase option price at end of lease term $4,290.00 Lease term 5 years Economic life of leased equipment 10 years Lessor’s cost $65,600.00 Fair value of asset at May 1, 2014 $80,600.00 Lessor’s implicit rate 10 % Lessee’s incremental borrowing rate 10 %
The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs.

Explanation / Answer

Solution.

Preparetion of lease amortization schedule for Rode Company for the 5-year lease term.

Date Annual lease Payment Interest on liabilty Reduction of Lease Liability Lease Libility 5/1/2014        80,600.00 5/1/2014                         18,690.33                                  18,690.33        61,909.67 5/1/2015                         18,690.33                      6,190.97                                  12,499.36        49,410.31 5/1/2016                         18,690.33                      4,941.03                                  13,749.30        35,661.01 5/1/2017                         18,690.33                      3,566.10                                  15,124.23        20,536.78 5/1/2018                         18,690.33                      2,053.68                                  16,636.65          3,900.13 4/30/2019                           4,290.00                          390.01                                    3,899.99                   0.14                         97,741.65                    17,141.79                                  80,599.86

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