Question

Edison Leasing leased high-tech electronic equipment to Manufacturers Southern on January 1, 2021. Edison purchased the equipment from International Machines at a cost of $139,107. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Related Information: Lease term 2 years (8 quarterly periods) Quarterly rental payments $18,000 at the beginning of each period Economic life of asset 2 years Fair value of asset $139, 107 Implicit interest rate (Also lessee's incremental borrowing rate) 43 Required: Prepare a lease amortization schedule and appropriate entries for Edison Leasing from the beginning of the lease through January 1, 2022. Edison's fiscal year ends December 31.

Answer 1

Answer :-

Lease Amortization Schedule -

Payment Date	Lease Payment	Effective Interest	Decrease in Balance(Lease payment- effective interest)	Lease Balance
01/01/2021	$18,000			$139,107
01/01/2021	18,000	$0	$18,000	121,107
04/01/2021	18,000	1,211 (=121,107× 4% × 3/12)	16,789	104,318
07/01/2021	18,000	1,043 (= 104,318 × 4% × 3/12)	16,957	87,361
10/01/2021	18,000	874 (=87,361 × 4% × 3/12)	17,126	70,235
01/01/2022	18,000	702(= 70,235 × 4%× 3/12)	17,298	52,937
04/01/2022	18,000	529 (= 52,937 × 4% × 3/12)	17,471	35,466
07/01/2022	18,000	355( =35,466× 4% × 3/12)	17,645	17,821
10/01/2022	18,000	179(=17,821 × 4% × 3/12)	17,821	0
Total	$144,000	$4,893	$139,107

Journal entries are as follows

No.	Date	Particular	Debit	Credit
1)	01/01/21	Lease receivable A/c. Dr.	$139,107
		To Equipment A/c		$139,107
		(To record the lease)
2)	01/01/21	Cash A/c Dr.	$18,000
		To Lease receivable A/c		$18,000
		(To record cash received)
3)	04/01/21	Cash A/c. Dr.	$18,000
		To Lease receivable A/c		$16,789
		To Interest revenue A/c		$1,211
		(To record cash received)
4)	07/01/21	Cash A/c. Dr.	$ 18,000
		To Lease receivable A/c		$16,957
		To Interest revenue A/c		$1,043
		(To record cash received)
5)	10/01/21	Cash A/c. Dr.	$18,000
		To Lease receivable A/c		$17,126
		To Interest revenue A/c		$874
		(To record cash received)
6)	12/31/21	Interest receivable A/c Dr.	$702
		To Interest revenue A/c		$702
		(To record Accrued interest)
7)	01/01/22	Cash A/c. Dr.	$18,000
		To Lease receivable A/c		$17,298
		To Interest Receivable A/c		$702
		(To record cash received)