SHOW LIST OF ACCOUNTS LINK TO TEXT MORGAN LEASING COMPANY (Lessor) Lease Amortiz

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SHOW LIST OF ACCOUNTS

LINK TO TEXT

MORGAN LEASING COMPANY (Lessor)
Lease Amortization Schedule

Date

Annual Lease Payment Plus
URV

Interest on Lease
Receivable

Recovery of Lease
Receivable

Lease Receivable

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Date

Account Titles and Explanation

Debit

Credit

1/1/14

(To record the lease.)

1/1/14

(To record lease payment.)

12/31/14

1/1/15

12/31/15

Morgan Leasing Company signs an agreement on January 1, 2014, to lease equipment to Cole Company. The following information relates to this agreement.
1. The term of the noncancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years. 2. The cost of the asset to the lessor is $245,000. The fair value of the asset at January 1, 2014, is $245,000. 3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $43,622, none of which is guaranteed. 4. Cole Company assumes direct responsibility for all executory costs. 5. The agreement requires equal annual rental payments, beginning on January 1, 2014. 6. Collectibility of the lease payments is reasonably predictable. There are no important uncertainties surrounding the amount of costs yet to be incurred by the lessor.

Explanation / Answer

Part 1)

The amount of annual payment can be calculated with the use of PMT function/formula of EXCEL/Financial Calculator. The function/formula for PMT is PMT(Rate,Nper,-PV,FV,Type) where Rate = Interest Rate (here, Rate of Return), Nper = Period, PV = Present Value, FV = Future Value and Type = 1 (indicates Annuity Due)

Here, Rate = 10%, Nper = 6, PV = $245,000 and FV =$43,622

Using these values in the above function/formula for PMT, we get,

Annual Payment = PMT(10%,6,-245000,43622) = $46,000

______

Part 2)

The amortization schedule is provided as below:

______

Part 3)

The journal entries are provided as below:

Morgan Leasing Company (Lessor) Lease Amortization Schedule Date Annual Lease Plus (A) URV Interest on Lease Receivable (B) Recovery of Lease Receivable (A-B) Lease Receivable 01/01/14 245,000 01/01/14 46,000 0 46,000 199,000 (245,000 - 46,000) 01/01/15 46,000 19,900 (199,000*10%) 26,100 172,900 (199,000 - 26,100) 01/01/16 46,000 17,290 (172,900*10%) 28,710 144,190 (172,900 - 28,710) 01/01/17 46,000 14,419 (144,190*10%) 31,581 112,609 (144,190 - 31,581) 01/01/18 46,000 11,261 (112,609*10%) 34,739 77,870 (112,609 - 34,739) 01/01/19 46,000 7,787 (77,870*10%) 38,213 39,657 (77,870 - 38,213) 12/31/19 43,622 3,965 (39,657*10%) 39,657 0 (39,657 - 39,657) $319,622 $74,622 $245,000

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