Laura Leasing Company signs an agreement on January 1, 2017, to lease equipment
ID: 2591397 • Letter: L
Question
Laura Leasing Company signs an agreement on January 1, 2017, to lease equipment to Sheridan Company. The following information relates to this agreement.
8. Sheridan uses reversing entries when appropriate.
Prepare all of the journal entries for the lessee for 2017 and 2018 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee’s annual accounting period ends on December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 2 decimal places, e.g. 15.25.)
1. The term of the noncancelable lease is 5 years with no renewal option. The equipment has an estimated economic life of 5 years. 2. The fair value of the asset at January 1, 2017, is $73,300. 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 $6,400, none of which is guaranteed. 4. Sheridan Company assumes direct responsibility for all executory costs, which include the following annual amounts: (1) $810 to Rocky Mountain Insurance Company for insurance and (2) $1,490 to Laclede County for property taxes. 5. The agreement requires equal annual rental payments of $16,307.79 to the lessor, beginning on January 1, 2017. 6. The lessee’s incremental borrowing rate is 12%. The lessor’s implicit rate is 9% and is known to the lessee. 7. Sheridan Company uses the straight-line depreciation method for all equipment.8. Sheridan uses reversing entries when appropriate.
Prepare all of the journal entries for the lessee for 2017 and 2018 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee’s annual accounting period ends on December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 2 decimal places, e.g. 15.25.)
Explanation / Answer
Annual rental payment $ 16,307.79 PV of annunity n=5 i=9% 4.23972 PV of aminimum lease payment $ 69,140.46 Lease amortization schedule Date Annual Pyt. Interest @9% Reduction Liability 1/1/2017 $ - $ - $ - $ 69,140.46 1/1/2017 $ 16,307.79 $ - $ 16,307.79 $ 52,832.67 1/1/2018 $ 16,307.79 $ 4,754.94 $ 11,552.85 $ 41,279.82 1/1/2019 $ 16,307.79 $ 3,715.18 $ 12,592.61 $ 28,687.22 1/1/2020 $ 16,307.79 $ 2,581.85 $ 13,725.94 $ 14,961.28 1/1/2021 $ 16,307.79 $ 1,346.52 $ 14,961.27 $ 0.00 Date Particulars Debit Credit 1/1/2017 Lease equipment $ 69,140.46 Lease liability $ 69,140.46 1/1/2017 Lease liability $ 16,307.79 Cash $ 16,307.79 Insurance Exp. $ 810.00 Cash $ 810.00 Property Tax Exp. $ 1,490.00 Cash $ 1,490.00 31/12/2017 Interest expenses $ 4,754.94 Interest payable $ 4,754.94 31/12/2017 Depreciation Exp. (69,140.46/5) $ 13,828.09 Accumulated Dep. $ 13,828.09 1/1/2018 Interest payable $ 4,754.94 Interest expenses $ 4,754.94 Interest Expenses $ 4,754.94 Lease liability $ 11,552.85 Cash $ 16,307.79 Insurance Exp. $ 810.00 Cash $ 810.00 Property Tax Exp. $ 1,490.00 Cash $ 1,490.00 31/12/2018 Interest expenses $ 3,715.18 Interest payable $ 3,715.18 Depreciation Exp. $ 13,828.09 Accumulated Dep. $ 13,828.09
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