The difference between the guaranteed residual value and expected residual value should be considered for the calculation of the present value of minimum lease payments
Guaranteed residual value by the lessee | $ 9,500 |
Expected residual value | $ 7,100 |
Difference | $ 2,400 |
Calculation of Present value of Miniumum lease payments | |||
Date | Payments | PV factor $ 8% | PV of Minimum lease payments |
December 31,2016 | $ 66,499 | 1 | $ 66,499 |
December 31,2017 | $ 66,499 | 0.92593 | $ 61,573 |
December 31,2018 | $ 66,499 | 0.85734 | $ 57,012 |
December 31,2019 | $ 66,499 | 0.79383 | $ 52,789 |
December 31,2020 | $ 66,499 | 0.73503 | $ 48,879 |
December 31,2021 | $ 66,499 | 0.68058 | $ 45,258 |
December 31,2022 | $ 66,499 | 0.63017 | $ 41,906 |
December 31,2023 | $ 66,499 | 0.58349 | $ 38,802 |
December 31,2024 | $ 66,499 | 0.54027 | $ 35,927 |
December 31,2025 | $ 66,499 | 0.50025 | $ 33,266 |
Difference of residual value | $ 2,400 | 0.50025 | $ 1,201 |
$ 4,83,112 |
Lease amortization table | ||||
Date | Lease payment | Interest expense on unpaid lease liability (8% on balance of lease liability | Reduction of lease liability | Balance of lease liability |
December 31,2016 | $ 4,83,112 | |||
December 31,2016 | $ 66,499 | $ - | $ 66,499 | $ 4,16,613 |
December 31,2017 | $ 66,499 |
$ 33,329.00 (416613*8%) |
$ 33,170 | $ 3,83,443 |
December 31,2018 | $ 66,499 |
$ 30,675.40 (383443*8%) |
$ 35,824 | $ 3,47,619 |
December 31,2019 | $ 66,499 |
$ 27,809.52 (347619*8%) |
$ 38,689 | $ 3,08,929 |
December 31,2020 | $ 66,499 |
$ 24,714.36 (308929*8%) |
$ 41,785 | $ 2,67,145 |
December 31,2021 | $ 66,499 |
$ 21,371.59 (267145*8%) |
$ 45,127 | $ 2,22,017 |
December 31,2022 | $ 66,499 |
$ 17,761.39 (222017*8%) |
$ 48,738 | $ 1,73,280 |
December 31,2023 | $ 66,499 |
$ 13,862.38 (173280*8%) |
$ 52,637 | $ 1,20,643 |
December 31,2024 | $ 66,499 |
$ 9,651.45 (120643*8%) |
$ 56,848 | $ 63,796 |
December 31,2025 | $ 66,499 |
$ 5,103.65 (63796*8%) |
$ 61,395 | $ 2,400 |
Total | $ 6,64,990 | $ 1,84,279 | $ 4,80,711 |
December 31,2016 | Right of use asset | $ 4,83,112 | |
Lease liability | $ 4,83,112 | ||
(To record lease) | |||
December 31,2016 | Lease liability | $ 66,499 | |
Cash | $ 66,499 | ||
(To record first lease payment) | |||
December 31,2017 | Depreciation ((483112)/10 | 48311.2 | |
Right of use asset | 48311.2 | ||
(To record amortization of right to use of asset) | |||
December 31,2017 | Interest expense | $ 33,329.00 | |
Lease liability | $ 33,170 | ||
Cash | $ 66,499 | ||
(To record interest expense) | |||
December 31,2018 | Depreciation ((483112-2400)/10 | 48311.2 | |
Right of use asset | 48311.2 | ||
(To record amortization of right to use of asset) | |||
December 31,2018 | Interest expense | $ 30,675.40 | |
Lease liability | $ 35,824 | ||
Cash | $ 66,499 | ||
(To record interest expense) |
All expenses incurred by lessee, relating to lease should be added to the right to use of asset and amortize over the lease term.
Right to use of asset | $ 4,83,112 |
Add: legal fee | $ 5,000 |
Less: Lease incentive | $ (1,000) |
Right to use of asset | $ 4,87,112 |
Expenses incurred by lessee should not affect the lease liability. Hence 5000 yearly insurance expenses should be recorded as operating expenses by the lessee.
Lease liability | $ 4,83,112 |
Lesse should debit 2400 balance in lease liability and record the differenc of $7,500 (9500-2400) residual value should be record as receivbale from lessor and recognzie entnrie $9,500 as gain from lease.
Sheffield | $ 7,100 | |
Lease liability | $ 2,400 | |
Gain on lease | $ 9,500 |
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