Discussion Questions

c) prepare the amortization schedule for the 5 year lease term

present value of an annuity 4.16987

5 periods discounted at 10% 18829

present value of the 5 rental payments 78517

add: present value of estimated residual value (.62092*20,000) 2483.68

lease receivable at inception 81,000

beginning year actual lease payment (a) interest 10% (b) lease receivable recovery (c ) lease receivable (d)

initial pv 81,000

5/1/2012 18,829.49 18,829.49 62,170.51

5/1/2013 18,829.49 6,217.05 12,612.44 49,558.07

5/1/2014 18,829.49 4,955.81 13,873.68 35,684.39

5/1/2015 18,829.49 3,568.44 15,261.05 20,423.34

5/1/2016 18,829.49 2,042.33 16,787.16 3,636.18

4/30/2017 4,000 363.62 3,636.38 (0.20)

98,147.45 17,147 81,000

d) journal entries

Entries for 5/1/2012

lease asset 81,000

lease liability 81,000

lease liability 18,829.49

cash 18,829.49

interest expense 2483.68

interest payable 2,483.68

depreciation expense 3,375

accumulated depreciation 3,375

[(81,000/10)*5/12]

entries for 1/1/2013

interest payable 2483.68

interest expense 2,483.68

entries for 5/1/2013

interest expense 6,217.05

lease liability 12,612.44

cash 18,829.49

entries for 12/31/2013

interest expense 7,845.62

interest payable 7,845.62

depreciation expense 8,100

accumulated depreciation 8,100