Question

Question 1 Larkspur Leasing Company signs an agreement on January 1, 2017, to lease equipment to Madison Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 7 years with no renewal option. The equipment has an estimated economic life of 7 years. 2. The cost of the asset to the lessor is $320,000. The fair value of the asset at January 1, 2017, is $320,000. 3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $9,000, none of which is guaranteed. 4. The agreement requires equal annual rental payments, beginning on January 1, 2017 5. Collectibility of the lease payments by Larkspur is probable. Assuming the lessor desires a 10% rate of return on its investment, calculate the amount of the annual rental payment required. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and the final answer to O decimal places e.g. 5,275.) Amount of the annual rental payment s Prepare an amortization schedule that is suitable for the lessor for the lease term. (Round answers to O decimal places e.g.5,275.) LARKSPUR LEASING COMPANY (Lessor) Lease Amortization Schedule Annual Lease Payment Plus URV Interest on Lease Receivable Recovery of Lease Receivable Date Lease Receivable 1/1/20 1/1/21 1/1/22 1/1/23 12/31/23

Answer 1

	Assuming the lessor desires a 10% rate of return on its investment, calculate the amount of annual Payment required
		$
a	Fair value of equipment	320000
b	Present value of residual value [9000*0.5132, (I = 10%, 7 years)]	-4619
c	Amount should be recovered from lease payments	315381
d	Present value factor odf annuity due(i= 10%, 7 years)	5.3556
e	Annual lease payment (c/d)	58888

Date	Annual lease payment	Interest on lease receivable	Recovery of lease receivable	Lease receivable
01-01-17				320000
01-01-17	58888	0	58888	261112
01-01-18	58888	26111	32777	228335
01-01-19	58888	22834	36055	192280
01-01-20	58888	19228	39660	152620
01-01-21	58888	15262	43626	108994
01-01-22	58888	10899	47989	61006
01-01-23	58888	6101	52788	8218
12/31/23	9040	822	8218	0
	421257	101257	320000

Date	Accounts titles and description	debit	credit
01-01-17	Lease receivable	320000
	Equipment		320000
01-01-17	Cash	58888
	Lease receivable		58888
12/31/17	Interest receivable	26111
	Interest revenue		26111
01-01-18	Cash	58888
	Lease receivable		32777
	Interest receivable		26111
12/31/18	Interest receivable	22834
	Interest revenue		22834