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 $119,292. (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 $15,700 at the beginning of each period Economic life of asset 2 years Fair value of asset $119,292 Implicit interest rate 6% (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 of the right-of-use asset is recorded at the end of each fiscal year (December 31) on a straight-line basis.

Answer 1

discount rate commencement 1/1/2021 date 12/31/202 2 end of lease term per annum 6% payments at the commencement of the lease: - Initial direct costs - Lease incentives 15,700 Upfront lease payment for Q1 2021 15,700 Subsequent quarterly upfront payments future payments M quarter (Q) payment $15,700.00 $15,700.00 $15,700.00 $15,700.00 $15,700.00 $15,700.00 $15,700.00 discount date of payment factor 4/1/2021 0.9857 7/1/2021 0.9715 10/1/2021 0.9574 1/1/2022 0.9434 4/1/2022 0.9299 7/1/2022 0.9165 10/1/2022 0.9032 discounted amount $15,476.04 $15,252.84 $15,030.46 $14,811.32 $14,600.04 $14,389.47 $14,179.68 in 00

Liability Schedule before reassessment of lease term 103,739.85 Lease liability at initial recognition quarter(Q) payment N discount 1,501 1,310 1,112 896 M opening $103,739.85 $105,241.11 $90,851.39 $76,263.29 $61,459.34 $46,421.54 $31,171.10 $15,700.00 + closing $105,241.11 $90,851.39 $76,263.29 $61,459.34 $46,421.54 $31,171.10 $15,700.00 ($15,700.00) ($15,700.00) ($15,700.00) ($15,700.00) ($15,700.00) ($15,700.00) ($15,700.00) in 662 0 00

Asset Schedule before reassessment of lease term Gross book value of the righ-of use asset at initial 119,440 recognition quarter (0) NBV opening $119,439.85 $104,509.87 $89,579.89 $74,649.91 $59,719.92 $44,789.94 $29,859.96 $14,929.98 depreciation ($14,929.98) ($14,929.98) ($14,929.98) ($14,929.98) ($14,929.98) ($14,929.98) ($14,929.98) ($14,929.98) NBV closing $104,509.87 $89,579.89 $74,649.91 $59,719.92 $44,789.94 $29,859.96 $14,929.98 $0.00 $125,600.00 Total payments Depreciation $119,439.85 expense $6,160.15 Discounting expense $125,600.00 Total expense

Date Accounting Entries Amount 1st Jan 2021 Asset a/c To Cash/Bank $15,700.00 $15,700.00 1st Jan 2021 Asset A/C To Edison leasing $103,739.85 $103,739.85 31st Dec 2021 Interest expense A/C To Edison leasing $4,819.00 $4,819.00 31st Dec 2021 Edison leasing To Cash/Bank a/c $47,100.00 $47,100.00 31st Dec 2021 Amortisation a/c To Asset a/c $59,720.00 $59,720.00 31st Dec 2022 Interest expense A/C To Edison leasing $1,341.00 $1,341.00 31st Dec 2022 Edison leasing To Cash/Bank a/c $62,800.00 $62,800.00 31st Dec 2022 Amortisation a/c To Asset a/c $59,720.00 $59,720.00