Universal Leasing leases electronic equipment to a variety of businesses. The co
ID: 2537628 • Letter: U
Question
Universal Leasing leases electronic equipment to a variety of businesses. The company's primary service is providing alternate financing by acquiring equipment and leasing it to customers under long-term sales-type leases. Universal earns interest under these arrangements at a 10% annual rate. The company leased an electronic typesetting machine it purchased for $46,900 to a local publisher, Desktop Inc. on December 31, 2017 The lease contract specified annual payments of $9,757 beginning January 1, 2018, the beginning of the lease, and each December 31 through 2019 (three-year lease term). The publisher had the option to purchase the machine on December 30, 2020, the end of the lease term, for $26,900 when it was expected to have a residual value of $30,900, a sufficient difference that exercise seems reasonably certain. (FV of $1, PV of $1. FVA of S1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Show how Universal calculated the $9,757 annual lease payments for this sales-type lease. 2. Prepare an amortization schedule that describes the pattern of interest revenue for Universal Leasing over the lease term. 3. Prepare the appropriate entries for Universal Leasing from the beginning of the lease through the end of the lease term. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Prepare the appropriate entries for Universal Leasing from the beginning of the lease through the end of the lease term. Round your intermediate and final answers to the nearest whole dollar amount. If no entry is required for a trensection/event, select " No journal entry required" in the first account field.) tration et Journal entry worksheetExplanation / Answer
1) The purchase value of $46,900 should be equal to sum of present value of annual lease payments for three years paid at the beginning of each year and present value of purchase value option to the lessee of $26,900 after three years at the rate of 10%.
Purchase Value = Annual Lease Payments*[1+PVAF(10%,2 yrs)]+Salvage value*PVF(10%,3 yrs)
$46,900 = [Annual Lease Payments*(1+1.73554)]+($26,900*0.75131)
46,900 = (Annual Lease Payments*2.73554)+20,210.24
Annual Lease Payments*2.73554 = 46,900 - 20,210.24
Annual Lease Payments = 26,689.76/2.73554 = $9,757
2) Lease amortization Schedule (Amount in $)
On December 31, 2020 there is no annual lease payment and therefore interest due for 2020 will increase the outstanding balance of $24,453 to $26,900. I have taken the interest for 2020 as the balancing figure of $2,447 to avoid rounding off difference.
3) Journal Entries for Universal leasing (Amount in $)
Date Payments (A) Effective Interest (B) (Outstanding balance*10%) Decrease in Balance (C = A-B) Outstanding Balance 1/1/18 9,757 0 9,757 (46,900 - 9,757) = 37,143 12/31/18 9,757 (37,143*10%) = 3,714 6,043 (37,143 - 6,043) = 31,100 12/31/19 9,757 (31,100*10%) = 3,110 6,647 (31,100 - 6,647) = 24,453 12/31/20 0 (26,900 - 24,453) = 2,447 0 26,900Related Questions
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