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 Intermediate Accounting Tenth Edition table.)

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

Required:
Prepare a lease amortization schedule and appropriate entries for Manufacturers Southern from the beginning of the lease through January 1, 2022. Amortization is recorded at the end of each fiscal year (December 31) on a straight-line basis.

Answer 1

Equipment Cost	$                                                                   1,12,446.00
Quarterly Rental Payment	$                                                                       15,300.00
Implicit Interest Rate	10%
Straight Line Depreciation=(Cost-Scrap Value) /Useful life=($112446-0)/2	$                                                                       56,223.00
Lease Amortization Schedule
Payment Date	Lease Payment	Effective Interest	Decrease in balance	Otstanding Balance
				$                   1,12,446
01-Jan-21	$                                                                             15,300	$                             -	$                        15,300	$                       97,146
01-04-2021	$                                                                             15,300	$                      2,429	$                        12,871	$                       84,275
01-07-2021	$                                                                             15,300	$                      2,107	$                        13,193	$                       71,082
01-10-2021	$                                                                             15,300	$                      1,777	$                        13,523	$                       57,559
01-01-2022	$                                                                             15,300	$                      1,439	$                        13,861	$                       43,698
01-04-2022	$                                                                             15,300	$                      1,092	$                        14,208	$                       29,490
01-07-2022	$                                                                             15,300	$                         737	$                        14,563	$                       14,927
01-10-2022	$                                                                             15,300	$                         373	$                        14,927
Total	$                                                                         1,22,400	$                      9,954	$                     1,12,446
Date	General,Journal	Debit	Credit
01-Jan-21	Lease Equipment	$          1,12,446.00
	To Lease Payable		$               1,12,446.00
	(Being amount of Lease Equipment)
01-01-2021	Lease Payable	$                   15,300
	To Cash		$                        15,300
	(Being amount lease Payable paid)
01-04-2021	Lease Payable	$                   12,871
	Interest Expense	$                      2,429
	To Cash		$                        15,300
	(Being amount of Lease & Interest Expense)
01-07-2021	Lease Payable	$                   13,193
	Interest Expense	$                      2,107
	To Cash		$                        15,300
	(Being amount of Lease & Interest Expense)
01-10-2021	Lease Payable	$                   13,523
	Interest Expense	$                      1,777
	To Cash		$                        15,300
	(Being amount of Lease & Interest Expense)
31-12-2021	Interest Expense	$                      1,439
	To Interest Payable		$                           1,439
	(Being amount of Interest Payable)
31-12-2021	Depreciation	$                   56,223
	To Accumulated Depreciation		$                        56,223
	(Being amount of Depreciation)
01-01-2022	Lease Payable	$                   13,861
	Interest Payable	$                      1,439
	To Cash		$                        15,300
	(Being amount of lease and Interest Payable)