Question

The following facts pertain to a non-cancelable lease agreement between Sheridan Leasing Company and Skysong Company, a lessee.

Commencement date		May 1, 2020
Annual lease payment due at the beginning of
each year, beginning with May 1, 2020		$15,349.90
Bargain purchase option price at end of lease term		$6,000
Lease term		5	years
Economic life of leased equipment		10	years
Lessor’s cost		$65,000
Fair value of asset at May 1, 2020		$76,000
Lessor’s implicit rate		4	%
Lessee’s incremental borrowing rate		4	%

The collectibility of the lease payments by Sheridan is probable.

Discuss the nature of this lease to Skysong. The nature of this lease to Skysong is a operatingsales-typefinance lease.

Discuss the nature of this lease to Sheridan. The nature of this lease to Sheridan is a financesales-typeoperating lease.

Prepare a lease amortization schedule for Skysong for the 5-year lease term.

Answer 1

Date	Annual Lease Payment Plus BPO	Interest on Liability	Reduction of Lease Liability	Lease Liability
5/1/20				76,000.00
5/1/20	15,349.90	-	15,349.90	60,650.10
5/1/21	15,349.90	2,426.00	12,923.90	47,726.20
5/1/22	15,349.90	1,909.05	13,440.85	34,285.35
5/1/23	15,349.90	1,371.41	13,978.49	20,306.87
5/1/24	15,349.90	812.27	14,537.63	5,769.24
4/30/25	6,000.00	230.76	5,769.24	0.00
	82,749.50	6,749.50	76,000.00