Manufacturers Southern leased high-tech electronic equipment from Edison Leasing

Question

Manufacturers Southern leased high-tech electronic equipment from Edison Leasing on January 1, 2016 Edison purchased the equipment from International Machines at a cost of $135,990. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Related Information: Lease term Quarterly rental payments $18,200 at the beginning of each period Economic life of asset Fair value of asset Implicit interest rate (Also lessee's incremental borrowing rate) 2 years (8 quarterly periods) 2 years $135,990 8% Required: Prepare a lease amortization schedule for the term of the lease. Also record the appropriate entries for Manufacturers Southern from the inception of the lease through January 1, 2017. Depreciation is recorded at the end of each fiscal year (December 31) on a straight-line basis Interest Expense Decrease in Balance ease Payment Date Lease Balance Payments $ 135,990 01/01/2016 04/01/2016 07/01/2016 10/01/2016 01/01/2017 04/01/2017 07/01/2017 10/01/2017 Totals 01$

Explanation / Answer

Answer 1. Payment Date Lease Payments Interest Expense Decrease in Balance Lease Balance 1/1/2016                   -                   -                     -            135,990 1/1/2016          18,200                 -            18,200          117,790 4/1/2016          18,200          2,356          15,844          101,946 7/1/2016          18,200          2,039          16,161            85,785 10/1/2016          18,200          1,716          16,484            69,300 1/1/2017          18,200          1,386          16,814            52,486 4/1/2017          18,200          1,050          17,150            35,336 7/1/2017          18,200             707          17,493            17,843 10/1/2017          18,200             357          17,843                    (0) Answer 2. Journal Entry Date Particulars Dr. Amt. Cr. Amt. 1/1/2016 Leased Equipment          135,990    Lease Payable          135,990 1/1/2016 Lease Payable            18,200    Cash            18,200 4/1/2016 Lease Payable            15,844 Interest Expense              2,356    Cash            18,200 7/1/2016 Lease Payable            16,161 Interest Expense              2,039    Cash            18,200 10/1/2016 Lease Payable            16,484 Interest Expense              1,716    Cash            18,200 31/12/2016 Lease Payable            16,814 Interest Expense              1,386    Accounts Payable            18,200 31/12/2016 Depreciation Expense            67,995    Accumaulated Depreciation - Leased Equip.            67,995 1/1/2017 Accounts Payable            18,200    Cash            18,200

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