Question

Manufacturers Southern leased high-tech electronic equipment from Edison Leasing on January 1, 2021. Edison purchased the equipment from International Machines at a cost of $112,446. (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.) or Use Intermediate Accounting table if not provided

Related Information:
Lease term	2 years (8 quarterly periods)
Quarterly rental payments	$15,300 at the beginning of each period
Economic life of asset	2 years
Fair value of asset	$112,446
Implicit interest rate	10%
(Also lessee’s incremental borrowing rate)

Required:
Prepare a lease amortization schedule and appropriate entries for Manufacturers Southern from the beginning of the lease through January 1, 2022. Amortization is recorded at the end of each fiscal year (December 31) on a straight-line basis.

Amortization schedule

Payment Date	Lease Payments	Effective Interest	Decrease in Balance	Lease Balance
1/1/2021
4/1/2021
7/1/2021
10/1/2021
1/1/2022
4/1/2022
7/1/2022
10/1/2022
Total

General Journal

1. Record the beginning of the lease for Manufacturers Southern. (January 1,2021)

2. Record lease payment. (January 1,2021)

3. Record lease payment. (April 1, 2021)

4. Record lease payment. (July 1, 2021)

5. Record lease payment. (October 1, 2021)

6. Record accrued interest. (December 31, 2021)

7. Record the amortization for right-of-use asset by Manufacturers Southern. (December 31, 2021)

8. Record lease payment. (January 1, 2022)

Answer 1

Solution:

Payment Date	Lease payments	Effective interest	Decrease in balance	Lease balance
1-Jan-21				$112,446
1-Jan-21	$15,300	$0	$15,300	$97,146
1-Apr-21	$15,300	$2,429	$12,871	$84,275
1-Jul-21	$15,300	$2,107	$13,193	$71,082
1-Oct-21	$15,300	$1,777	$13,523	$57,559
1-Jan-22	$15,300	$1,439	$13,861	$43,698
1-Apr-22	$15,300	$1,092	$14,208	$29,490
1-Jul-22	$15,300	$737	$14,563	$14,927
1-Oct-22	$15,300	$373	$14,927	$0
Total	$122,400	$9,954

Manufacturers Southern
Journal Entries
Date	Particulars	Debit	Credit
1-Jan-21	Equipment Dr	$112,446.00
	To Lease Payable		$112,446.00
	(To record lease)
1-Jan-21	Lease Payable Dr	$15,300.00
	To Cash		$15,300.00
	(To record lease payment)
1-Apr-21	Interest expense Dr	$2,429.00
	Lease payable Dr	$12,871.00
	To Cash		$15,300.00
	(To record lease payment)
1-Jul-21	Interest expense Dr	$2,107.00
	Lease payable Dr	$13,193.00
	To Cash		$15,300.00
	(To record lease payment)
1-Oct-21	Interest expense Dr	$1,777.00
	Lease payable Dr	$13,523.00
	To Cash		$15,300.00
	(To record lease payment)
31-Dec-21	Depreciation expense Dr	$56,223.00
	To Accumulated depreciation - Equipment		$56,223.00
	(To record amortization)
31-Dec-21	Interest expense Dr	$1,439.00
	To Interest payable		$1,439.00
	(To record interest expense accured)
1-Jan-22	Interest payable Dr	$1,439.00
	Lease payable Dr	$13,861.00
	To Cash		$15,300.00
	(To record lease payment)

Answer 2

Effective interest rate calculation example 971446*10%/4 = 2429