Question

Can you please help me with the journal entries for this? I already have part A and B completed.

The following facts pertain to a noncancelable lease agreement between Monty Leasing Company and Flounder Company, a lessee.

Inception date:		May 1, 2017
Annual lease payment due at the beginning of
each year, beginning with May 1, 2017		$19,803.59
Bargain-purchase option price at end of lease term		$3,900
Lease term		5	years
Economic life of leased equipment		10	years
Lessor’s cost		$71,000
Fair value of asset at May 1, 2017		$85,000
Lessor’s implicit rate		10	%
Lessee’s incremental borrowing rate		10	%

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.

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(a)

• Your Answer
• Correct Answer

Correct answer iconYour answer is correct.

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.)

Lease receivable at inception

$

eTextbook and Media

List of Accounts

Solution

Attempts: 3 of 3 used

(b)

• Your Answer
• Correct Answer

Correct answer iconYour answer is correct.

Prepare a lease amortization schedule for Monty Leasing Company for the 5-year lease term. (Round answers to 2 decimal places, e.g. 16.25.)

MONTY LEASING COMPANY (Lessor) Lease Amortization Schedule
Date		Annual Lease Payment Plus BPO		Interest on Lease Receivable		Recovery of Lease Receivable		Lease Receivable
5/1/17		$		$		$		$
5/1/17		$		$		$
5/1/18
5/1/19
5/1/20
5/1/21
4/30/22
		$		$		$

eTextbook and Media

List of Accounts

Attempts: 3 of 3 used

(c)

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 Monty. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 16.25.)

Date	Account Titles and Explanation	Debit	Credit
5/1/17
	(To record the lease.)
	(To record lease payment. )
5/1/1712/31/175/1/1812/31/185/1/1912/31/19
5/1/1712/31/175/1/1812/31/185/1/1912/31/19
5/1/1712/31/175/1/1812/31/185/1/1912/31/19
5/1/1712/31/175/1/1812/31/185/1/1912/31/19
5/1/1712/31/175/1/1812/31/185/1/1912/31/19

Answer 1

For the clarity, this is amortization schedule of the lease:

Date	Annual Lease Payment	Interest (rate 10%)	Obligation Paid	Balance
01-05-17	Initial Present Value of lease obligation and bargain option			$85,000.00
01-05-17	$19,803.59	$0.00		$65,196.41
30-04-18	$19,803.59	$6,519.64	$13,283.95	$51,912.46
30-04-19	$19,803.59	$5,191.25	$14,612.34	$37,300.12
30-04-20	$19,803.59	$3,730.01	$16,073.58	$21,226.54
30-04-21	$19,803.59	$2,122.65	$17,680.94	$03,546.60

Date	Particulars	Debit	Credit
1-May-17	Minimum Lease Payment Receivables ($19,803.59 x 5 + $3,900)	$102,917.95
	Sales Revenue (recorded at fair value)		$85,000
	Uneraned Interest Revenue ($102,917.95 - $85,000)		$17,917.95
(Being leased asset recorded)
Journal Entry
Date	Particulars	Debit	Credit
1-May-17	Cost of goods sold	$71,000.00
	Equipment held for lease		$71,000.00
(Being sales-type lease recorded)
Journal Entry
Date	Particulars	Debit	Credit
30-Apr-18	Cash	$19,803.59
	Minimum lease payment receivables		$19,803.59
(Being lease receipt recorded)
Journal Entry
Date	Particulars	Debit	Credit
30-Apr-18	Unearned Interest Revenue	$6,519.64
	Interest Income		$6,519.64
(Being lease interest income recorded)
Journal Entry
Date	Particulars	Debit	Credit
30-Apr-19	Cash	$19,803.59
	Minimum lease payment receivables		$19,803.59
(Being lease receipt recorded)
Journal Entry
Date	Particulars	Debit	Credit
30-Apr-19	Unearned Interest Revenue	$5,191.25
	Interest Income		$5,191.25
(Being lease interest income recorded)
Journal Entry
Date	Particulars	Debit	Credit
30-Apr-20	Cash	19803.59
	Minimum lease payment receivables		$19,803.59
(Being lease receipt recorded)
Journal Entry
Date	Particulars	Debit	Credit
30-Apr-20	Unearned Interest Revenue	$3,730.01
	Interest Income		$3,730.01
(Being lease interest income recorded)

Journal Entry
Date	Particulars	Debit	Credit
30-Apr-21	Cash	19803.59
	Minimum lease payment receivables		$19,803.59
(Being lease receipt recorded)
Journal Entry
Date	Particulars	Debit	Credit
30-Apr-21	Unearned Interest Revenue	$2,122.65
	Interest Income		$2,122.65