Question

Edison Leasing leased high-tech electronic equipment to Manufacturers Southern on January 1, 2021. Edison purchased the equipment from International Machines at a cost of $113,515. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1).

Related Information:Lease term 2 years (8 quarterly periods)Quarterly rental payments $15,700 at the beginning of each periodEconomic life of asset 2 yearsFair value of asset $113,515Implicit interest rate 12%
Required:Prepare a lease amortization schedule and appropriate entries for Edison Leasing from the beginning of the lease through January 1, 2022. Edison’s fiscal year ends December 31.

Answer 1

Schedule:

`\left[\begin{array}{cccccc}$Period&$Beginning&$Installment&$Interest&$Amortization&$Ending\\1&113515&15700&0&15700&97815\\2&97815&15700&2934&12766&85049\\3&85049&15700&2551&13149&71900\\4&71900&15700&2157&13543&58357\\5&58357&15700&1752&13948&44409\\6&44409&15700&1333&14367&30042\\7&30042&15700&902&14798&15244\\8&15244&15700&456&15244&0\\\end{array}\right]`

Journal entries:

equipment 113,515 debit

lease liablity 97,815 credit

cash 15,700 credit

--to record lease agrement and first payment.

interest expense 2,934 debit

lease liability 2,934 credit

--to record interest for the year 2021--

lease liablity 15,700 debit

cash 15,700 credit

--to record Jan 1st,2022 Payment--

Step-by-step explanation:

As the payment are at the beginning there is no interest in the first period.

We record the expense for the year at Dec 31th Increasing the liability. When paying we increase decrease the liability and cash.