Question

Metlock Leasing Company signs a lease agreement on January 1, 2020, to lease electronic equipment to Ivanhoe Company. The term of the non- cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement: 1. Ivanhoe has the option to purchase the equipment for $22,000 upon termination of the lease. It is not reasonably certain that Ivanhoe will exercise this option. 2. The equipment has a cost of $240,000 and fair value of $269,000 to Metlock Leasing. The useful economic life is 2 years, with a residual value of $22,000. 3. Metlock Leasing desires to earn a return of 5% on its investment. 4. Collectibility of the payments by Metlock Leasing is probable. Click here to view factor tables

Answer 1

Date Accounts Titles & Explanation Debit Credit $269,000 01/01/2020 Lease Receivable Equipment (to record finance lease) $269,000 12/31/21 $133,938 Cash Lease Receivable Interest Revenue (to record lease rent received) $120,488 $13,450 12/31/21 $133,938 Cash Lease Receivable Interest Revenue (to record lease rent received) $126,512 $7,426 Credit Date 12/31/21 Accounts Titles & Explanation Cash Lease Receivable Debit $22,000 $22,000 Please comment if you have any doubt Please give thumps up if you are satisfied with the answer

working notes Computations of annual payments: pv factor @ 5% year 1 0.95238 year 2 0.90703 annuity 1.85941 Fair value of leased assets to lessor Less: present value of salvage value ($22,000 x 0.907031 Amount to he recovered through lease payments $269,000 $19,955 $249,045 Two periodic lease payments $249,045/1.85941 $133,938 Lease period covers economic life of the asset - it is finance lease Recovery of lease Int. on lease Receivable Annual Payment Date 01/01/2017 12-31-17 12-31-18 Lease Receivable $269,000 $148,512 $22,000 $133,938) $133,938 $13,450 $7,426 $120.488 $126,512