Question

Exercise 21-10 Sage Leasing Company signs an agreement on January 1, 2017, to lease equipment to Cole Company. The following information relates to this agreement. 1. The term of the noncancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years. 2. The cost of the asset to the lessor is $277,000. The fair value of the asset at January 1, 2017, is $277,000. 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 $3,404, none of which is guaranteed. 4. Cole Company assumes direct responsibility for all executory costs. 5. The agreement requires equal annual rental payments, beginning on January 1, 2017. 6. Collectibility of the lease payments is reasonably predictable. There are no important uncertainties surrounding the amount of costs yet to be incurred by the lessor. Click here to view factor tables Assuming the lessor desires a 11% rate of return on its investment, calculate the amount of the annual rental payment required. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to o decimal places e.g. 58,971.) The amount of the annual rental payment t SHOW LIST OF ACCOUNTS LINK TO TEXT

Answer 1

Answer Assuming the lessor desires a 11% rate of return on its investment, Calculate the amount of the annual rental payment The amount of the annual 52610 vental payment Fair value of the asset = $277000 Unguranteed residual = $ 3404 value Present value of unguranteed = $3404 x PVF (11%.,6Y) residual value - $34044 0.53464 = $ 1820 of lease Present value bayments - $ (277000-1820) = $ 275180 Annual rental payment = present value of lease payments (If lease payment made at I PVAR (11%, 6 years) + 1 the beginning of the year) L Present Value Annuity factor 1,6Y) = 4,23054 (PVAF) Annual rental payment = $275180 4.23054 + 1 = $52610

-> prepare an amortization schedule that would be suitable for the lessor for the lease term "- SAGE LEASING COMPANY (Lessor) Lease Amortization Schedule Date Annual tease payment Interest on lease Recovery of Lease plus UGRV Receivable Lease receivable Yeceivable 1/17 $277000 152610 52610 $ 224390 11/18 52610 24683 IS27927 >]196463 52610 21611 30999 $1165454 1/1/20 52610 18201 134409) $131055

1921 52610 14416 9286) 38194 1/4/22 52610 5240 10215 02154295) 450ved 42395 150466 (12/31/22 52610 3407 5551 147059

368270 94677 273513 In the books of Lesson Journal Entries Date Account Titles and Explanation Debit credit 277000 lease receivable ac Equipment and (To record lease) 277000 52610 52610 Cash ale lease receivable a1c (To record first leace payment received |31/12/17 24683 Finance Income receivable ale Finance Income all (To record Acerund Finante Income of lease 24663

31/12/17 24683 24683 Finance Income and profit and Loss ale (To record Accrued finance Income transferred) 52610 1/4/18 24683 cash ale Finance Income receivable alc lease receivable ale (To record lease payment) received 27927 2 161) 31/12/18 21611 Finance Income receivable ac Finance Income and (To record accrued Finance Income) 21611 | 31/12/18 Finance Income all profit and Loss and (To record accrued Income) transferred 21611