Question

The following facts pertain to a non-cancelable lease agreement between Ford and NextCar, a lessee.

                Lease Origination Date                                                                                                                   May 1, 2017

                Annual lease payments due at the beginning of each lease year                                   $20.471.94

                Bargain purchase option price at the end of lease term                                                   $4,000

                Lease term                                                                                                                                          5 years

                Economic life of leased equipment                                                                                          10 years

                Lessor’s cost                                                                                                                                       $65,000

                Fair value of asset on May 1, 2017                                                                                             $91,000

                Fair value of asset on May 1, 2022                                                                                             $15,000

                Lessor implicit rate                                                                                                                          8%

                Lessee’s incremental borrowing rate                                                                                       8%

The collectability of the lease payments is probable.

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

Answer 1

NEXTCAR COMPANY (Lessee)
Lease Amortization Schedule
	A	B	C= A -B	Previous year Bal. - C
Date	Annual Lease Payment Plus BPO	Interest on (previous year lease liability x 8%) Liability	Reduction of Lease Liability	Lease Liability
May 1, 2017				$91,000
May 1, 2017	$20,471.94		$20,471.94	$70,528.06
May 1, 2018	$20,471.94	$5,642.24	$14,829.7	$55,698.36
May 1, 2019	$20,471.94	$4,455.87	$16,016.07	$39,682.29
May 1, 2020	$20,471.94	$3,174.58	$17,297.36	$22,384.94
May 1, 2021	$20,471.94	$1,790.8	$18,681.14	$3,703.79
May 1, 2022	$4,000	$296.2	$3,703.8	-$0
	$106,359.7	$15,359.7	$91,000