Question

Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Kingbird Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 3 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, 2020, is $74,000. 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 $3,000, none of which is guaranteed. 4. The agreement requires equal annual rental payments of $24.716 to the lessor, beginning on January 1, 2020. 5. The lessee's incremental borrowing rate is 5%. The lessor's implicit rate is 4% and is unknown to the lessee 6. Kingbird uses the straight-line depreciation method for all equipment. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Prepare an amortization schedule that would be suitable for the lessee for the lease term. (Round answers to decimal places, e.g. 5,265.) KINGBIRD COMPANY (Lessee) Lease Amortization Schedule Annual Lease Payment Interest on Liability Reduction of Lease Liability Date Lease Liability 1/1/20 $ $ $ $ 1/1/20 1/1/21 1/1/22 $ $

Answer 1

2 1-1-2020 Answers present value = 24,716 [ +(45754) 24,776 x 1.85941 = $ 45,957 present value of Lease = $ 24,716 + $45,957 = $ 70.673 1) calculate the Amortization schedule Date Annual Lease Interest on Reduction Lease Liability payment Liability@5% Lease Liabililes $70,673 B+022020 $24,716 $ 24,716 $ 45,957 B-082021 $24.716 $ 2,298 $22,418 $23,539 at 2022 $ 24,716 $ 1,177 $ 23,539 2) Journal Entries: Ioate particolars Debit credit 2020 Right of use Asset $70,673 Jan-l Lease Liability $70,673 Being the Lease recognition Lease Liability $24,714 Cash $ 24,714 Being the first leave payment] beggil Interest Expenses $2,298 Lease Liability $2,298 Being record interest expense] Amortization expense (90673/3] $23,558 Right of use Asset Being Amortization of sight of use Ared $23,558 202! Lease Liability $2,298 $2,298 Being record interest ece pense] ease Liabilila $ 22,418 Interest Grepense $ 2,298 Being reach and Lease $24,716 payment Decal Interest expense Lease. Liability $6177 Being record interest expense] $1,177 Amortisation expense (10673/33 $23558 Right of cise Asset. $23,558 Being Amortization of sight of use asse] Jaurl Interest expense L