Marigold Leasing Company signs a lease agreement on January 1, 2017, to lease el
ID: 2524965 • Letter: M
Question
Marigold Leasing Company signs a lease agreement on January 1, 2017, to lease electronic equipment to Swifty Company. The term of the noncancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement:
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(a) Prepare the journal entries on the books of Marigold Leasing to reflect the payments received under the lease and to recognize income for the years 2017 and 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 0.527552 and the final answers to 0 decimal places e.g. 5,275.)
Date
Account Titles and Explanation
Debit
Credit
(b) Assuming that Swifty Company exercises its option to purchase the equipment on December 31, 2018, prepare the journal entry to reflect the sale on Marigold’s books. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 0.527552 and the final answers to 0 decimal places e.g. 5,275.)
Date
Account Titles and Explanation
Debit
Credit
12/31/18
1. Swifty Company has the option to purchase the equipment for $15,700 upon termination of the lease. 2. The equipment has a cost and fair value of $157,000 to Marigold Leasing Company. The useful economic life is 2 years, with a salvage value of $15,700. 3. Swifty Company is required to pay $5,000 each year to the lessor for executory costs. 4. Marigold Leasing Company desires to earn a return of 9% 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 the lessor.Explanation / Answer
Cost of leased asset =157000
Less: present value of salvage (15700*0.84168)=13214
Amounts to be recovered through lease payments =143786
Two periodic lease payments 143786/1.75911 = 81738
Part B
Date account titles and explanation debit credit 1/1/17 lease receivable 157000 Equipment 157000 12/31/17 cash 81738 Executory cost 5000 Lease receivable 62608 Interest revenue 14130 12/31/18 cash 81738 Executory cost 5000 Lease receivable 68423 Interest (157000-62608)*9% 8495Related Questions
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