2. 3 4 5 2 yrs 8 1 Problem 3. Following are the terms of a lease entered into on January 1, 2020. [LC] FMV of asset at inception of lease $500,000.00 Estimated residual value of asset at lease termination $80,000.00 Portion of residual value guaranteed by Lessee $50,000.00 Lessor's amortized cost of asset at inception of lease $500,000.00 6 Duration of lease 7 Lease payment amount $230,458.00 Frequency of payments annually 9 First payment due at inception of lease? Yes 10 Purchase option that Lessee is reasonably certain to exercise? No 11 Title transfers to Lessee at any time during or at end of lease? No 12 Lessor's implicit rate 12% 13 Lessee's incremental borrowing rate 12% 14 Does Lessee know Lessor's implicit rate? 15 Remaining economic life of asset 16 Economic life of asset when new 17 Specialized use asset with no alternative use to Lessor at end of lease? no 18 Nonlease components included in lease payment? 19 Initial direct costs incurred by Lessor (assume recorded by Lessor in Misc. 20 Expenses when incurred) none 21 Initial direct costs incurred by Lessee (assume recorded by Lessor in Misc. 22 Expenses when incurred) 23 Lessor's fiscal year end 12/31 24 Lessee's fiscal year end 12/31 25 Required 26 27 1. For the following lease, prepare amortization schedule and lease-related entries booked by Lessor and 28 Lessee over the entire lease term. yes 5 yrs 5 yrs no none 29 30 Complete the amortization schedule by entering the appropriate values in the green boxes 31 Lessee amortization schedule: 32 33 date pmt Interest principal balance 1/1/20 35 1/1/20 $230,458 36 12/31/20 $230,458 37 38 Lessor amortization schedule 39 date pmt Interest principal balance 1/1/20 42 1/1/20 $230,458.00 43 12/31/20 $230,458.00 12/31/21 45 46 Enter your entries below. Choose the account from the drop-down list in the yellow cell. Enter the amount of the entry in the green box 47 Entries by Lessee at inception of lease on 1/1/2020: 40 Debit Credit 1 1 1 1 49 Account 50 51 52 53 54 55 Entries by Lessor at inception of lease on 1/1/2020: 56 57 Account 58 59 61 + Debit Credit NNNN Debit Credit 3 3 60 64 Entries by Lessee at 12/31/2020: 65 66 Account 67 68 69 70 71 72 73 74 75 Entries by Lessor at 12/31/2020: 76 Account 3 3 3 Debit Credit 4 79 81 82 Entries by Lessor at 12/31/2021: 83 Account 84 85 Debit Credit 5 5 5 5 86 87 88 89 90 Entries by Lessee at 12/31/2021: 91 Account 92 93 94 Debit Credit 6 6 97 98 2. Redo Lessor's entry to book the lease on January 1, 2020 assuming that the Lessor's amortized cost of 99 the asset is $400,000 100 101 Enter your entries below. Choose the account from the drop-down list in the yellow cell. Enter the amount of the entry in the green box 102 Entries by Lessor at inception of lease on 1/1/2020: 103 Account Debit Credit 104 7 7 106 7 107 7 108 109 110 111 112 105 112 Home Insert Page Layout Formulas Data Revie Calibri (Body) 11 . Paste B I U A1 fx Column1 A B D E F G 1 Column1 2 Accumulated lepreciation (Bal. Sht) 3 Cash (Bal. Sht 4 Deferred rent revenue (Bal. Sht) 5 Equipment (B.Sht) 6 Lease payable (Bal. Sht) 7 Lease receivable (Bal. Sht) 8 Note payable Bal. Sht) 9 Prepaid service contract (Bal. Sht) 10 Right-of-Use asset (Bal. Sht) 11 Warehouse (ebl. Sht) 12 Amortization xpense (Inc. Stmt) 13 Cost of goods sold (Inc. Stmt) 14 Gain on sale of warehouse (Inc. Stmt) 15 Interest experse (Inc. Stmt) 16 Interest revenue (Inc. Stmt) 17 Lease expense (Inc. Stmt) 18 Lease revenue (Inc. Stmt) 19 Misc. expenses (Inc. Stmt) 20 Rent revenue Inc. Stmt) 21 Sales revenue Inc. Stmt) 22 23 24 25 26 27 28 29 30 31 32 33
