Exercise 21A-6 a-b Sage Hill Leasing Company signs a lease agreement on January

Question

Exercise 21A-6 a-b Sage Hill Leasing Company signs a lease agreement on January 1, 2017, to lease electronic equipment to Oriole Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each . Oriole has the option to purchase the equipment for $17,000 upon termination of the lease. It is not reasonably certain that Oriole will exercise this option. 2. The equipment has a cost of $140,000 and fair value of $195,500 to Sage Hill Leasing. The useful economic life is 2 years, with a residual value of $17,000 Sage Hill Leasing desires to earn a return of 5% on its investment. 4. Collectibility of the payments by Sage Hill Leasing is probable Click here to views the facter table. Prepare the journal entries on the books of Sage Hill Leasing to reflect the payments received under the lease and to recognize income for the years 2017 and 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places e.g. 5,275.)

Explanation / Answer

a) Computation of annual payments Cost (fair Value) Of leased asset to lessor $195,500.00 Less: Present value of salvage value = $17,000 x pv(5%,2) $15,419.50 Amount to be recovered through lease payments $180,080.50 Two periodic lease payments = $180080.50/PVIFA(5%,2) $96,848.17 Sage Hill Leasing (lessor) Lease Amortization Schedule Date Annual Payment Interest on Lease Receivable Recovery of Lease Receivable Lease Receivable Jan 1,2017 $195,500.00 Dec 31 $96,848.17 $9,775.00 $87,073.17 $108,426.83 Dec 31, 2018 $96,848.17 $5,421.34 $91,426.83 $17,000.00 Date Account Titles and Explanation Debit Credit Jan 1 2017 Lease Receivable $195,500.00                  Equipment $195,500.00 Dec 31 2017 Cash $96,848.17             Interest Receivables $87,073.17              Interest Revenue $9,775.00 Dec 31 2018 Cash $96,848.17             Interest Receivables $91,426.83              Interest Revenue $5,421.34 b) Dec 31 2018 Cash $17,000.00           Lease Receivables $17,000.00

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