Question

Edison Leasing leased high-tech electronic equipment to Manufacturers Southern on January 1, 2024. Edison purchased the equipment from International Machines at a cost of $127,024.

Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

Related Information:
Lease term	2	years (8 quarterly periods)
Quarterly rental payments	$ 17,000	at the beginning of each period
Economic life of asset	2	years
Fair value of asset	$ 127,024
Implicit interest rate (Also lessee’s incremental borrowing rate)	8%

Required:

Prepare a lease amortization schedule and appropriate entries for Edison Leasing from the beginning of the lease through January 1, 2025. Edison’s fiscal year ends December 31.

Answer 1

Step 1) Total lease payment= 127,024   payment amount: 17,000                                                                   PV: n=(2yr*4 quarterly)= 8, I=8%/4=2%      Use PVAD of $1:  7.47199                   17,000*7.47199=127,023.83 or 127,024

Answer:

Payment date	Lease   payments(a)	Effective   interest (b) 2% *outstanding balance	Decrease in   balance (c=a-b)	Lease balance   (outstanding balance) (Last year-   c)
01/01/2024				127,024
01/01/2024	17,000	0	17,000	110,024
04/01/2024	17,000	2,200	14,800	95,224
07/01/2024	17,000	1,904	15,096	80,128
10/01/2024	17,000	1,603	15,397	64,731
01/01/2025	17,000	1,295	15,705	49,026
04/01/2025	17,000	981	16,019	33,007
07/01/2025	17,000	660	16,340	16,667
10/01/2025	17,000	333	16,667	0
Total	136,000	8,976	127,024

 

Journal entries (answer)

Record the lease

Jan 1 dr. lease receivable (fair value)                        127,024

              Cr. Equipment (lessor’s cost)                                       127,024

Record cash received. Jan 1,2024

 Dr. Cash                                             17,000

    Cr. Lease receivable                                    17,000

 

Record cash received. April 1,2024

Dr. Cash                                                      17,000

  Cr. Interest revenue (127,024-17,000)*2%       2,200.48

   Cr. Lease receivable (17,000-2,200)                                   14,800

Record cash received. July 1,2024

Dr.  Cash                                                       17,000

  Cr. Interest revenue (110,024-14,800)*2%                           1,904

  Cr. Lease receivable (17,000-1,904)                                    15,096

Record cash received. Oct 01,2024

Dr. Cash                                                17,000

  Cr. Interest revenue                                          1,603

  Cr. Lease receivable (17,000-1,603)                  15,397

Record accrued interest Dec 31,2024

Dr.  Interest receivable                         1,295

  Cr. Interest revenue                                     1,295

Record cash received. Jan 01,2025

Dr. Cash                                  17,000

  Cr. Interest receivable                                           1,295

  Cr. Lease receivable (17,000-1,295)                 15,705