Matematica

Problem 1:

Kingdom Leasing Inc. agrees to lease jousting equipment to Knight Inc. on Jan 1, 2014. They agree on the following terms: |

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1) The normal selling price of the jousting equipment is $410000 and the cost of the asset to Kingdom Leasing Inc. was $250000. |

2) Knight will pay all maintenance, insurance, and tax costs directly and annual payments of $60000 on Jan 1 each year. |

3) The lease begins on Jan 1, 2014 and payments will be in equal annual installments. |

4) The lease is noncancelable with no renewal option. The lease term is 10 years (the same as the estimated economic life). |

5) At the end of the lease, the jousting ring will revert to Kingdom Leasing Inc. and have an unguaranteed residual value of $30000. Their implicit interest rate is 10%. |

6) Kingdom Leasing, Inc. incurred costs of $6500 in negotiating and closing the lease. There are no uncertainties regarding additional costs yet to be incurred and the collectability of the lease payments is reasonably predictable. |

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Required: |

a) Determine what type of lease this would be for Kingdom Leasing Inc. and calculate the following: (Show all work.) |

| Lease Receivable |

| Sales Price |

| Cost of Sales |

b) Prepare Kingdom's amortization schedule for the lease terms. |

c) Prepare all the journal entries for Kingdom for 2014. Assume a calendar year fiscal year. |

Problem 2: Use the data given in Problem #1 and answer the required questions to record the lease in the Knight Inc.’s books. |

Required: |

a) Determine what type of lease this would be for the lessee and calculate the initial obligation. |

b) Prepare Knight Inc.'s amortization schedule for the lease terms. |

c) Prepare all the journal entries for Knight Inc. for 2014. Assume a calendar year fiscal year. |