17) Mid-South Auto Leasing leases vehicles to consumers. The attraction to customers is that the company can offer competitive prices due to volume buying and requires an interest rate implicit in the lease that is one percent below alternate methods of financing. On September 30, 2021, the company leased a delivery truck to a local florist, Anything Grows. The fiscal year for both companies ends December 31. The lease agreement specified quarterly payments of $3,900 beginning September 30, 2021, the beginning of the lease, and each quarter (December 31, March 31, and June 30) through June 30, 2024 (three-year lease term). The florist had the option to purchase the truck on September 29, 2023, for $7,800 when it was expected to have a residual value of $12,700. The estimated useful life of the truck is four years. Mid-South Auto Leasings quarterly interest rate for determining payments was 3% (approximately 12% annually). Mid-South paid $32,560 for the truck. Both companies use straight-line depreciation or amortization. Anything Grows incremental interest rate is 12%. Hint: A lease term ends for accounting purposes when an option becomes exercisable if its expected to be exercised (i.e., a BPO). (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.) Required: 1. Calculate the amount of selling profit that Mid-South would recognize in this sales-type lease. (Be careful to note that, although payments occur on the last calendar day of each quarter, since the first payment was at the beginning of the lease, payments represent an annuity due.)

Selling profit

2. Prepare the appropriate entries for Anything Grows and Mid-South on September 30, 2021.

• 1 Record the beginning of the lease for Anything Grows.

• 2 Record the cash payment for Anything Grows.

• 3 Record the beginning of the lease for Mid-South Auto Leasing.

• 4 Record the cash received by Mid-South.

3. Prepare an amortization schedule(s) describing the pattern of interest expense for Anything Grows and interest revenue for Mid-South Auto Leasing over the lease term.

Lease Amortization Schedule
Date	Payments	Effective Interest	Decrease in Balance	Outstanding Balance
9/30/21	blank	blank	blank
9/30/21
12/31/21				blank
3/31/22	blank		blank	blank
6/30/22	blank		blank	blank
9/30/22	blank		blank	blank
12/31/22	blank		blank
3/31/23	blank		blank
6/30/23	blank		blank
9/29/23		blank	blank

4. Prepare the appropriate entries for Anything Grows and Mid-South Auto Leasing on December 31, 2021.

• 1 Record the amortization for Anything Grows.

• 2 Record the cash payment for Anything Grows.

• 3 Record the cash received by Mid-South Auto Leasing.

5. Prepare the appropriate entries for Anything Grows and Mid-South on September 29, 2023, assuming the purchase option was exercised on that date.

• 1 Record the amortization for Anything Grows (Lessee) for the quarter ended September 29, 2023.

• 2 Record the cash payment for Anything Grows.

• 3 Record the cash payment received by Mid-South Auto Leasing.