Question

Crane Leasing Company leases a new machine to Sharrer Corporation. The machine has a cost of $65,000 and fair value of $91,000. Under the 3-year, non-cancelable contract, Sharrer will receive title to the machine at the end of the lease. The machine has a 3-year useful life and no residual value. The lease was signed on January 1 2017, Crane expects to eam an 8% return on its investment, and this ımplicit rate is known by Sharrer. The annual rentals are payable on each December 31, beginning December 31, 2017. Prepare an amortization schedule that would be suitable for both the lessor and the lessee and that covers all the years involved. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places e.g. 5,275.) Date Rent Receipt/ Payment Interest Revenue/ Expense Reduction of Principa Receivable/ Liability 12/31/17 12/31/18 12/31/19 Prepare the jounal entry at commencement of the lease for Crane. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit

Answer 1

Year	PV factor @ 8%
1	0.92593
2	0.85734
3	0.79383
Total	2.57710
Lease payment (91000/2.57710)	$                  35,311

Lease Amortization Schedule
Date	Annual Lease Payment	Interest on Liability	Reduction of Lease Liability	Lease Liability
Jan 1, 2017				$                  91,000
Dec 31, 2017	$                                                                      35,311	$                  7,280	$                   28,031	$                  62,969
Dec 31, 2018	$                                                                      35,311	$                  5,038	$                   30,273	$                  32,696
Dec 31, 2019	$                                                                      35,311	$                  2,616	$                   32,695	$                            0
Interest on Liability = Beginning Lease Liability * 8%
Reduction of Lease Liability = Annual Lease Payment - Interest on Liability
Lease Liability = Beginning Lease Liability - Reduction of Lease Liability

Date	General Journal	Debit	Credit
Jan 1, 2017	Lease receivable	$                91,000
	Cost of goods sold	$                65,000
	Inventory (If the company have business of sales of machinery) / Equipment		$                   65,000
	Sales revenue		$                   91,000
	(To record lease agreement for sales-type lease.)