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

General Journal

Journal Entry 1 - Jan 01, 2021 -Record the beginning of the lease for Manufacturers Southern.

Journal Entry 2 - Jan 01, 2021 - Record lease payment

Journal Entry 3 - Aprl 01, 2021 - Record lease payment.

Journal Entry 4 - July 01, 2021 - Record lease payment

Journal Entry 5 - oct 01, 2021 - Record lease payment

Journal Entry 6 - Dec 31, 2021 - Record accrued interest

Journal Entry 7 - Dec 31, 2021 - Record amortization of the right-of-use asset for Manufacturers Southern

Journal Entry 8 - Jan 01, 2022 - Record lease payment

Answer 1

Solution 1:

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

Solution 2:

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)
Edison Leasing
Journal Entries
Date	Particulars	Debit	Credit
1-Jan-21	Lease receivables Dr	$131,379.00
	To Equipment		$113,515.00
	(To record lease)
1-Jan-21	Cash Dr	$17,000.00
	To Lease receivables		$17,000.00
	(To record cash received)
1-Apr-21	Cash Dr	$17,000.00
	To Lease receivables		$15,856.00
	To Interest revenue		$1,144.00
	(To record cash received)
1-Jul-21	Cash Dr	$17,000.00
	To Lease receivables		$16,015.00
	To Interest revenue		$985.00
	(To record cash received)
1-Oct-21	Cash Dr	$17,000.00
	To Lease receivables		$16,175.00
	To Interest revenue		$825.00
	(To record cash received)
31-Dec-21	Interest receivables Dr	$663.00
	To Interest revenue		$663.00
	(To record interest revenue accured)
1-Jan-22	Cash Dr	$17,000.00
	To Lease receivables		$16,337.00
	To Interest receivables		$663.00
	(To record cash received)