Grichuk Power leased high-tech electronic equipment from Kolten Leasing on Janua

Question

Grichuk Power leased high-tech electronic equipment from Kolten Leasing on January 1, 2018. Kolten purchased the equipment from Wong Machines at a cost of $255,500, its fair value. (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.)

Required:
Prepare a lease amortization schedule and appropriate entries for Grichuk Power from the commencement of the lease through December 31, 2018. December 31 is the fiscal year end for each company. Appropriate adjusting entries are recorded at the end of each quarter.

Related Information: Lease term 2 years (8 quarterly periods) Quarterly lease payments $20,500 at Jan. 1, 2018, and at Mar. 31, June 30, Sept. 30, and Dec. 31 thereafter. Economic life of asset 5 years Interest rate charged by the lessor 8%

Explanation / Answer

For 3 months lease rent is 20500, so for 12 months will be 82000

As it is a operating lease so no enrty at inception of lease.

For lease rent paid:

Lease expense account debit 82000

To Cash account credit 82000

Depriciation per year=Cost of Asset/Economic life of asset

$255500/5=$51100.

Period Cash Expense Liab Reduction Liab Balance 0 - - - 1 82000 6560 75440 75440 2 82000 6560 75440 0

For 3 months lease rent is 20500, so for 12 months will be 82000

As it is a operating lease so no enrty at inception of lease.

For lease rent paid:

Lease expense account debit 82000

To Cash account credit 82000

Depriciation per year=Cost of Asset/Economic life of asset

$255500/5=$51100.

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