Exercise 21-9 The following facts pertain to a noncancelable lease agreement bet
ID: 2595507 • Letter: E
Question
Exercise 21-9
The following facts pertain to a noncancelable lease agreement between Waterway Leasing Company and Wildhorse Company, a lessee.
The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs.
Compute the amount of the lease receivable at the inception of the lease. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and Round answers to 2 decimal places, e.g. 16.25.)
Prepare a lease amortization schedule for Waterway Leasing Company for the 5-year lease term.
Prepare the journal entries to reflect the signing of the lease agreement and to record the receipts and income related to this lease for the years 2017, 2018, and 2019. The lessor’s accounting period ends on December 31. Reversing entries are not used by Waterway.
Inception date: May 1, 2017 Annual lease payment due at the beginning of each year, beginning with May 1, 2017 $21,117.02 Bargain-purchase option price at end of lease term $3,800 Lease term 5 years Economic life of leased equipment 10 years Lessor’s cost $59,000 Fair value of asset at May 1, 2017 $92,000 Lessor’s implicit rate 9 % Lessee’s incremental borrowing rate 9 %Explanation / Answer
Lease Receivable at inception : $ 92,000.
Lease receivable at inception = $ 21,117.02 x PVA 9%, 5 years x 1.09 + $ 3,800 x PV 9% , 5th year = $ 21,117.02 x 4.2397 + $ 3,800 x 0.6499 = $ 89,529.83 + $ 2,469.62 = 91,999.45 or $ 92,000.
In the books of Waterway Leasing Company:
Date Annual Lease Payment Plus BPO Interest on Lease Receivable Recovery of Lease Receivable Lease Receivable $ $ $ $ 5/1/17 92,000 5/1/17 21,117 0 21,117 70,883 5/1/18 21,117 6,379 14,738 56,145 5/1/19 21,117 5,053 16,064 40,081 5/1/20 21,117 3,607 17,510 22,571 5/1/21 21,117 2,031 19,086 3,485 4/30,22 3,800 315 3,485 0Related Questions
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