Question

Laura Leasing Company signs an agreement on January 1, 2017, to lease equipment to Flounder Company. The following information relates to this agreement.

1.		The term of the noncancelable lease is 5 years with no renewal option. The equipment has an estimated economic life of 5 years.
2.		The fair value of the asset at January 1, 2017, is $74,100.
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 $6,500, none of which is guaranteed.
4.		Flounder Company assumes direct responsibility for all executory costs, which include the following annual amounts: (1) $840 to Rocky Mountain Insurance Company for insurance and (2) $1,440 to Laclede County for property taxes.
5.		The agreement requires equal annual rental payments of $16,802.49 to the lessor, beginning on January 1, 2017.
6.		The lessee’s incremental borrowing rate is 12%. The lessor’s implicit rate is 10% and is known to the lessee.
7.		Flounder Company uses the straight-line depreciation method for all equipment.
8.		Flounder uses reversing entries when appropriate.

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Prepare an amortization schedule that would be suitable for the lessee for the lease term. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and Round answers to 2 decimal places, e.g. 15.25.)

FLOUNDER COMPANY (Lessee) Lease Amortization Schedule
Date		Annual Lease Payment		Interest on Liability		Reduction of Lease Liability		Lease Liability
1/1/17		$		$		$		$
1/1/17
1/1/18
1/1/19
1/1/20
1/1/21
		$		$		$

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Prepare all of the journal entries for the lessee for 2017 and 2018 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee’s annual accounting period ends on December 31.

The full question is too long but the journal entries needed are:

1. To record the lease.)

2. (To record lease payment.)

3. To record insurance payment

4. To record property tax payment.

5. To record interest.

6. To record depreciation

7. To reverse interest.

8. To record lease payment (3)

9. To record insurance payment

10. To record property tax payment

11. To record interest

12. To record depreciation

Answer 1

Exercise 17-8 (Amortization Schedule and Journal Entries for Lessee)Laura Leasing Company signs an agreement on January 1, 2008, to lease equipment to Plote Company. The following information relates to this agreement
Initial Liability :
PV of lease payments, $16,802.49  X 4.16986 (PV of an annuity due @ 9%,5 )	$                                                             70,064.03
Sweet Company (Lessee)
Lease Amortization Schedule
	(a)	(b) Preceding balance of (d) X 10%	(c) (a) minus (b)	(d) Preceding balance minus ©
Beginning of Year	Annual Lease Payment Plus GRV	Interest (10%) on Unpaid Liability	Reduction of Lease Liability	Lease Liability
1/1/17				$        70,064.03
1/1/17	16802.49		$                         16,802.49	$        53,261.54
1/1/18	16802.49	$          5,326.15	$                         11,476.34	$        41,785.21
1/1/19	16802.49	$          4,178.52	$                         12,623.97	$        29,161.24
1/1/20	16802.49	$          2,916.12	$                         13,886.37	$        15,274.87
1/1/21	16802.49	$          1,527.49	$                         15,275.00	$               (0.13)
Total	$                                                             84,012.45	$        13,948.29	$                         70,064.16
Journal Entries
Date	Account Titles and Explanation	Debit	Credit
1/1/17	Leased Equipment Under Capital Leases	$        70,064.03
	Lease Liability		$                         70,064.03
	(To reacord Lease)
1/1/17	Lease Liability	$        16,802.49
	Cash		$                         16,802.49
	(To reacord Lease Payment)
During 2017	Insurance Expense	$             840.00
	Cash		$                              840.00
	( To Record  Insurance payment)
	Property Tax Expense	$          1,440.00
	Cash		$                           1,440.00
	(To record Propert tax payment)
12/31/17	Interest Expense	$          5,326.15
	Interest Payable		$                           5,326.15
	(To record Interest)
	Depreciation Expense (70064.03/5 years)	$        14,012.81
	Accumulated Depreciation —Capital Leases		$                         14,012.81
	(To record Depreciation)
1/1/18	Interest Payable	$          5,326.15
	Interest Expense		$                           5,326.15
	(To reverse Interest)
	Interest Expense	$          5,326.15
	Lease Liability	$        11,476.34
	Cash		$                         16,802.49
During 2018	Insurance Expense	$             840.00
	Cash		$                              840.00
	( To Record  Insurance payment)
	Property Tax Expense	$          1,440.00
	Cash		$                           1,440.00
	(To record Propert tax payment)
12/31/18	Interest Expense	$          4,178.52
	Interest Payable		$                           4,178.52
	(To record Interest)
	Depreciation Expense (70064.03/5 years)	$        14,012.81
	Accumulated Depreciation —Capital Leases		$                         14,012.81
	(To record Depreciation)
The unguaranteed residual value is not subtracted when depreciating the leased asset
Fair market value of leased asset to lessor	$                                                             74,100.00
Less: Present value of unguaranteed residual value  $6,500 X .62092	$                                                               4,035.98
Amount to be recovered through lease payments	$                                                             70,064.02
Five periodic lease payments = 70064.02/4.1698	$                                                             16,802.73
Present value of annuity due of 1 for 5 periods at 10%	4.1698
present value of 1 at 10% for 5 periods	0.62092