Question

Exercise 15-22 e and tions @ ration 7,036 A capital lease agreement for equipment requires Granger Transport Ltd. to make 10 annual payments of $40,000, with the first payment due on January 2, 2017, the date of the inception of the lease. The present value of the nine future lease payments at 10 percent is $230,360. Required 1. Calculate the present value of the lease at 5 percent if your instructor has taught present value. 2. Journalize the following lessee transactions: 2017 Jan. 2 Dec. 31 31 2018 Jan. 2 Beginning of lease term and first annual payment. Amortization of equipment (10 percent), Interest expense on lease liability Second annual lease payment. 3. Assume now that this is an operating lease. Journalize the lanuary 2, 2017, lease payment.

Answer 1

Requirement 1:

First lease payment	$40,000
Present value of the nine future lease payments	$284,313
[40,000 x 7.107822 Present value annuity factor (5%, 9 years)]
Present value of the lease	$324,313

Requirement 2:

Date	Account title and explanation	Debit	Credit
Jan 2,2017	Right-of-Use Asset (40,000+230,360)	$270,360
	Lease liability		$270,360
	[commencement of lease]
Jan 2,2017	Lease liability	$40,000
	Cash		$40,000
	[First lease payment]
Dec 31,2017	Amortization expense [270,360 x 10%]	$27,036
	Right-of-Use asset		$27,036
	[Amortization expense]
Dec 31,2017	Interest expense [230,360 x 10%]	$23,036
	Lease liability		$23,036
	[Interest expense]
Jan 2,2018	Lease liability	$40,000
	Cash		$40,000
	[Payment of second lease payment]

Requirement 2:

Date	Account title and explanation	Debit	Credit
Jan 2,2017	Right-of-Use Asset (40,000+230,360)	$270,360
	Lease liability		$270,360
	[commencement of lease]
Jan 2,2017	Lease liability	$40,000
	Cash		$40,000
	[First lease payment]
Dec 31,2017	Lease expense [270,360 x 10%]	$27,036
	Right-of-Use asset		$27,036
	[Lease expense]
Dec 31,2017	Lease expense [230,360 x 10%]	$23,036
	Lease liability		$23,036
	[Lease expense]
Jan 2,2018	Lease liability	$40,000
	Cash		$40,000
	[Payment of second lease payment]