Baillie Power leased high-tech electronic equipment from Courtney Leasing on January 1, 2021. Courtney purchased the...
Baillie Power leased high-tech electronic equipment from
Courtney Leasing on January 1, 2021. Courtney purchased the
equipment from Doane Machines at a cost of $251,500, its fair
value. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and
PVAD of $1) (Use appropriate factor(s) from the tables
provided.)
| Related Information: | |
| Lease term | 2 years (8 quarterly periods) |
| Quarterly lease payments | $16,500 at Jan. 1, 2021, and at Mar. 31, June 30, Sept. 30, and Dec. 31 thereafter |
| Economic life of asset | 5 years |
| Interest rate charged by the lessor | 8% |
Required:
Prepare a lease amortization schedule and appropriate entries for
Baillie Power from the beginning of the lease through December 31,
2021. December 31 is the fiscal year end for each company.
Appropriate adjusting entries are recorded at the end of each
quarter.
Homework Answers
| Computation of Lease Amortisation | |||||
| Date | Lease Payment | Interest | Amortisation | Quarter closing Lease value | Lease value |
| (a) | (b) = Lease value * 2% | (c ) = (a)- (b) |
Calculation (d) = Closing Lease value - (c ) |
||
| 01-01-2021 | - | - | - | 1,23,288 | |
| 01-01-2021 | 16,500 | - | - | 1,20,780 - 16500 | 1,06,788 |
| 31-03-2021 | 16,500 | 2,136 | 14,364 | 1,04,280 - 14,414 | 92,423 |
| 30-06-2021 | 16,500 | 1,848 | 14,652 | 89,866 - 14,703 | 77,772 |
| 30-09-2021 | 16,500 | 1,555 | 14,945 | 75,163 - 14,997 | 62,827 |
| 31-12-2021 | 16,500 | 1,257 | 15,243 | 60.166 - 15,297 | 47,584 |
| 31-03-2022 | 16,500 | 952 | 15,548 | 44,869 - 15,603 | 32,035 |
| 30-06-2022 | 16,500 | 641 | 15,859 | 29,267 - 15,915 | 16,176 |
| 30-09-2022 | 16,500 | 324 | 16,176 | 16,176 - 16,176 | - |
| Working Notes: | |||
| Lease Term = | 2 years (8 quarterly periods) | ||
| Economic useful life of the asset = | 5 years | ||
| Interest Rate = | 8% | ||
| Quarterly lease payments = | 16500 | ||
| Interest Rate = | Quarterly basis 2% (8%/4) | ||
| Calculation of Present value Annuity @ 2% | |||
| Year (Date) | Payments | Present Value Factor @ 2% | Present Value |
| 01-01-2021 | 16,500 | 1 | 16,500 |
| 31-03-2021 | 16,500 | 0.98039 | 16,176 |
| 30-06-2021 | 16,500 | 0.96116 | 15,859 |
| 30-09-2021 | 16,500 | 0.94232 | 15,548 |
| 31-12-2021 | 16,500 | 0.92384 | 15,243 |
| 31-03-2022 | 16,500 | 0.90573 | 14,945 |
| 30-06-2022 | 16,500 | 0.88797 | 14,652 |
| 30-09-2022 | 16,500 | 0.87056 | 14,364 |
| Total | 1,23,288 |
| Baillie Power | |||
| Journal Entries through 31st December,2021 | |||
| Date | Particulars | Debit ($) | Credit ($) |
| 01-01-2021 | Right to use asset A/c Dr. | 1,23,288 | |
| To Lease liability A/c | 1,23,288 | ||
| (To record lease) | |||
| 01-01-2021 | Lease Liability A/c Dr. | 16,500 | |
| To Cash A/c | 16,500 | ||
| (To record lease payment on 01.01.2021) | |||
| 31-03-2021 | Finance Cost A/c Dr. | 2,136 | |
| To Lease liability A/c | 2,136 | ||
| (To record effective interest recognised on lease liability) | |||
| 31-03-2021 | Lease Liability A/c Dr. | 16,500 | |
| To Cash A/c | 16,500 | ||
| (To record lease payment) | |||
| 31-03-2021 | Depreciation A/c Dr. | 17,613 | |
| To Right to use asset A/c | 17,613 | ||
| (To record depreciation on right of use asset life taken as 7 quarters i.e., 01.01.2021 to 30.09.2020, since payment stops on 30.09.2022) | |||
| 30-06-2021 | Finance Cost A/c Dr. | 1,848 | |
| To Lease liability A/c | 1,848 | ||
| (To record effective interest recognised on lease liability) | |||
| 30-06-2021 | Lease Liability A/c Dr. | 16,500 | |
| To Cash A/c | 16,500 | ||
| (To record lease payment) | |||
| 30-06-2021 | Depreciation A/c Dr. | 17,613 | |
| To Right to use asset A/c | 17,613 | ||
| (To record depreciation on right of use asset) | |||
| 30-09-2021 | Finance Cost A/c Dr. | 1,555 | |
| To Lease liability A/c | 1,555 | ||
| (To record effective interest recognised on lease liability) | |||
| 30-09-2021 | Lease Liability A/c Dr. | 16,500 | |
| To Cash A/c | 16,500 | ||
| (To record lease payment) | |||
| 30-09-2021 | Depreciation A/c Dr. | 17,613 | |
| To Right to use asset A/c | 17,613 | ||
| (To record depreciation on right of use asset) | |||
| 31-12-2021 | Finance Cost A/c Dr. | 1,257 | |
| To Lease liability A/c | 1,257 | ||
| (To record effective interest recognised on lease liability) |
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