Question

Laura Leasing Company signs an agreement on January 1, 2017, to lease equipment to Sage Company. The following information relates to this agreement.

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 $84,600.

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 $6,800, none of which is guaranteed.

4. Sage 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) $1,630 to Laclede County for property taxes.

5. The agreement requires equal annual rental payments of $18,911.74 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. Sage Company uses the straight-line depreciation method for all equipment. 8. Sage uses reversing entries when appropriate. Click here to view factor tables Collapse question part (a)

Prepare an amortization schedule that would be suitable for the lessee for the lease term.

(a) Prepare an amortization schedule that would be suitable for the lessee for the lease term. (Round pr SAGE COMPANY (Lessee) Lease Amortization Schedule Annual Lease Interest on Reduction of Lease Payment Liability Liability Date Lease Liability 1/1/17 1/1/17 1/1/18 1/1/19 1/1/20 1/1/21 LINK TO TEXT Dacamisa+biection Acciatan Lilla wilay a ta based on the noist Datan

Answer 1

Answer with working is given below

SAGE COMPNAY(Lessee) Lease Amortisaction Schedule Interset Reduction Annual of Lease on Date Lease Liability Liability Lease Payments at 9% Liability $80,180.48 $18,911.74 $61,268.74 01-01-2017 01-01-2017 $18,911.74 01-01-2018 $18,911.74$5,514.19 $13,397.55 $47,871.19| 01-01-2019 $18,911.74 $4,308.41 $14,603.33 $33,267.85| 01-01-2020 $18,911.74 $2,994.11 $15,917.63 $17,350.22 01-01-2021 $18,911.74 $1,561.52 $17,350.22 $94,558.70 $14,378.22 $80,180.48 Present value of lease payments PV of Annual PV factor Total payment Payments $80,180 $18,911.74 Annual Rental payments 4.2397 Fair value of Asset $84,600 Equipment is recorded at lower of PV of lease payments or Fair value $80,180