Bramble Leasing Company signs an agreement on January 1, 2017, to lease equipment to Cole Company. The following information relates to this agreement.
1. | The term of the noncancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years. | |
2. | The cost of the asset to the lessor is $268,000. The fair value of the asset at January 1, 2017, is $268,000. | |
3. | The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $33,446, none of which is guaranteed. | |
4. | Cole Company assumes direct responsibility for all executory costs. | |
5. | The agreement requires equal annual rental payments, beginning on January 1, 2017. | |
6. | Collectibility of the lease payments is reasonably predictable. There are no important uncertainties surrounding the amount of costs yet to be incurred by the lessor. |
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(a)
Assuming the lessor desires a 10% rate of return on its investment, calculate the amount of the annual rental payment required. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)
The amount of the annual rental payment |
$ 52000 |
(b)
Prepare an amortization schedule that would be suitable for the
lessor for the lease term. (Round answers to 0 decimal
places e.g. 58,971.)
BRAMBLE LEASING COMPANY (Lessor) |
||||||||
Date |
Annual Lease Payment Plus |
Interest on Lease |
Recovery of Lease |
Lease Receivable |
||||
1/1/17 |
$ |
$ |
$ |
$ |
||||
1/1/17 | ||||||||
1/1/18 | ||||||||
1/1/19 | ||||||||
1/1/20 | ||||||||
1/1/21 | ||||||||
1/1/22 | ||||||||
12/31/22 | ||||||||
$ |
$ |
$ |
BRAMBLE LEASING COMPANY | ||||
Lease Amortization Schedule | ||||
Date |
Annual lease payment Plus URV |
Interest on Lease Receivable |
Recovery of Lease Receivable |
Lease Receivable |
1/1/17 | $268,000 | |||
1/1/17 | $52,000 | $52,000 | $216,000 | |
1/1/18 | $52,000 | $21,600 | $30,400 | $185,600 |
1/1/19 | $52,000 | $18,560 | $33,440 | $152,160 |
1/1/20 | $52,000 | $15,216 | $36,784 | $115,376 |
1/1/21 | $52,000 | $11,538 | $40,462 | $74,914 |
1/1/22 | $52,000 | $7,491 | $44,509 | $30,405 |
12/31/22 | $33,446* | $3,041 | $30,405 | $0 |
*URV is $33,446
Lease receivable on 1/1/17 is Fair value of the asset.
Interest on lease receivable = Preceding lease receivable x 10%
Recovery of Lease Receivable = Annual lease payment Plus URV - Interest on lease receivable
Lease receivable = Preceding lease receivable - Recovery of lease receivable
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