Problem 21A-9 a2-c Whispering Company manufactures a check-in kiosk with an esti

Question

Problem 21A-9 a2-c

Whispering Company manufactures a check-in kiosk with an estimated economic life of 12 years and leases it to National Airlines for a period of 10 years. The normal selling price of the equipment is $298,352, and its unguaranteed residual value at the end of the lease term is estimated to be $18,300. National will pay annual payments of $40,000 at the beginning of each year. Whispering incurred costs of $185,300 in manufacturing the equipment and $3,700 in sales commissions in closing the lease. Whispering has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 8%.

Compute the amount of each of the following items. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 0 decimal places, e.g. 5,275.)

(1) Lease receivable

(2) Sales Price

(3) Cost of Sales

Prepare a 10-year lease amortization schedule for Whispering, the lessor.

WHISPERING COMPANY (Lessor)
Lease Amortization Schedule
Annuity Due Basis, Unguaranteed Residual Value

Beginning
of Year

Annual Lease Payment
Plus Residual Value

Interest on
Lease Receivable

Lease Receivable
Recovery

Lease
Receivable

Prepare all of the lessor’s journal entries for the first year.

(To record the sale and the cost of goods sold in the lease transaction.)

(To record payment of the initial direct costs relating to the lease.)

(To record receipt of the first lease payment.)

(To record interest earned during the first year of the lease.)

WHISPERING COMPANY (Lessor)
Lease Amortization Schedule
Annuity Due Basis, Unguaranteed Residual Value

Beginning
of Year

Annual Lease Payment
Plus Residual Value

Interest on
Lease Receivable

Lease Receivable
Recovery

Lease
Receivable

Explanation / Answer

1. Computation of amount of Lease Receivable Annual Rental Payment $40,000 Present Value of Annual Payment (40,000 x 7.24689) $289,876 Present value of residual Value (18,300 x 0.46319) $8,476 Lease Receivable $298,352 Present value of annuity due for 10 years at 8% = 7.24689 2. Computation of amount of Sales Price Sales Price (40,000 x 7.24689) $289,876 3. Cost of Sales Manufacturing Cost $185,300 Less: Present value of residual value (18,300 x 0.46319) $8,476 Cost of sales $176,824 4. Lease Amortization Schedule Beginning of year Annual Lease Payment plus Residual Value Interest on lease receivable Lease receivable Recovery Lease Receivable $298,352 1-Jan $40,000 $0 $40,000 $258,352 1-Jan $40,000 $20,668 $19,332 $239,020 1-Jan $40,000 $19,122 $20,878 $218,142 1-Jan $40,000 $17,451 $22,549 $195,593 1-Jan $40,000 $15,647 $24,353 $171,241 1-Jan $40,000 $13,699 $26,301 $144,940 1-Jan $40,000 $11,595 $28,405 $116,535 1-Jan $40,000 $9,323 $30,677 $85,858 1-Jan $40,000 $6,869 $33,131 $52,726 1-Jan $40,000 $4,218 $35,782 $16,945 31-Dec $18,300 $1,356 $16,944 $0 5. Lessor Journal Entries for first year Lease Receivable $298,352 Cost of Goods sold $176,824      Sales Revenue $289,876      Inventory $185,300 (To record the sale and cost of goods sold in the lease transaction) Sales Commission $3,700      Cash $3,700 (To record payment of the initial direct costs relating to lease) Cash $40,000       Lease receivable $4,000 (To record receipt of first lease payment) Interest reveivable $20,668       Interest Income $20,668 (To record interest earned during first year of lease)

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