Berne Company (lessor) enters into a lease with Fox Company to lease equipment t
ID: 2547296 • Letter: B
Question
Berne Company (lessor) enters into a lease with Fox Company to lease equipment to Fox beginning January 1, 2016. The lease terms, provisions, and related events are as follows:
Required:
Prepare journal entries for Berne, the lessor, for the years 2016 and 2017.
Calculate the selling price and assume that this is also the fair value. $
Berne Company
Lease Payments Received and Interest Revenue Earned Summary
2016 - 2019
1
Date
Annual Lease Payment Received
Interest Revenue at 12% on Net Investment
Amount of Net Investment Recovered
Lease Receivable
Unearned Interest: Leases
Net Investment
2
January 1, 2016
3
December 31, 2016
4
December 31, 2017
5
December 31, 2018
6
December 31, 2019
Prepare journal entries for Berne, the lessor, for the years 2016 and 2017.
1. The lease term is 4 years. The lease is noncancelable and requires annual rental payments of $50,000 to be made at the end of each year. 2. The equipment costs $130,000. The equipment has an estimated life of 4 years and an estimated residual value at the end of the lease term of zero. 3. Fox agrees to pay all executory costs. 4. The interest rate implicit in the lease is 12%. 5. The initial direct costs are insignificant and assumed to be zero. 6. The collectibility of the rentals is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor.Explanation / Answer
Berne Company (Lesser) Lease Amortization Schedule Calculation of Lease Receivable at Inception Date Annual Lease Payment Received Interest Revenue at 12% on Net Investment Lease Receivable Unearned Interest Leases net Investment Present Value of Annual Lease Payment ($50000*3.03735) Round off $151,868.00 01/01/2016 $200,000 $48,132 $151,868 Fair Value of Lease $151,868.00 31/12/2016 $50,000 $18,224 $150,000 $29,908 $120,092 31/12/2017 $50,000 $14,411 $100,000 $15,497 $84,503 Journal Entry in the books of Berne Company 31/12/2018 $50,000 $10,140 $50,000 $5,356 $44,644 Date Account & Explanation Debit Credit 31/12/2019 $50,000 $5,357 $0 -$1 $1 01/01/2016 Lease Receivable $200,000.00 Cost of Goods Sold $130,000.00 Sales $151,868.00 Unearned interest on Lease $48,132.00 Inventory $130,000.00 To Record Sale , Lease Receivable and Uneraned Interest 31/12/2016 Unearned interest on Lease $18,224.00 Interest revenue $18,224.00 To Recored interest Income 31/12/2016 Cash $50,000.00 Lease Receivable $50,000.00 To record Annual Lease Rent received 31/12/2017 Unearned interest on Lease $14,411.00 Interest revenue $14,411.00 To Recored interest Income 31/12/2017 Cash $50,000.00 Lease Receivable $50,000.00 To record Annual Lease Rent received
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