Question

The following facts pertain to a noncancelable lease agreement between Wildhorse Leasing Company and McKee Electronics, a lessee, for a computer system.

A) Assuming the lessor’s accounting period ends on September 30, answer the following questions with respect to this lease agreement.

b) What items and amounts will appear on the lessor’s balance sheet at September 30, 2018?
c) What items and amounts will appear on the lessor’s income statement for the year ending September 30, 2019?

d) What items and amounts will appear on the lessor’s balance sheet at September 30, 2019?

Commencement date Lease term Economic life of leased equipment Fair value of asset at October 1, 2017 Book value of asset at October 1, 2017 Residual value at end of lease term Lessor's implicit rate Lessee's incremental borrowing rate Annual lease payment due at the beginning of each year, beginning with October 1, 2017 October 1, 2017 6 years 6 years $354,989 $280,000 -0- 9 % 9 % $72,600 The collectibility of the lease payments is probable by the lessor. The asset will revert to the lessor at the end of the lease term. The straight-line depreciation method is used for all equipment. The following amortization schedule has been prepared correctly for use by both the lessor and the lessee in accounting for this lease. The lease is to be accounted for properly as a finance lease by the lessee and as a sales-type lease by the lessor. Annual Lease Date Payment/Receipt 10/01/17 10/01/17 $72,600 10/01/18 72,600 10/01/19 72,600 10/01/20 72,600 10/01/21 72,600 10/01/22 72,600 $435,600 Interest (9%) on Unpaid Reduction of Lease Balance of Lease Liability/Receivable Liability/Receivable Liability/Receivable $354,989 $72,600 282,389 $25,415 47,185 235,204 21,168 51,432 183,772 16,539 56,061 127,711 11,494 61,106 66,605 5,995 66,605 -0- $80,611 $354,989

Answer 1

1. $235,204 appear on lessor's balance sheet on asset side as lease receivable as on september,30 2018.

2. $ 21,168 amount recorded as interest income in the income statement as on september,30 2019.

3. $183,772 appear on appear on lessor's balance sheet on assets side as lease receivable as on september,30 2019.