Amount to be recovered: $571,220
Lease payments: $100,000
2 Problem 15-19 (Algo) Initial direct costs; sales-type lease (LO15-2, 15-7) 2.85 Bidwell Leasing purchased a single-engine plane for its fair value of $571,220 and leased it to Red Baron Flying Club on January 1, 2021. (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.) points Skipped Terms of the lease agreement and related facts were: Print a. Eight annual payments of $100,000 beginning January 1, 2021, the beginning of the lease, and at each December 31 through 2027. Red Baron knows that Bidwell Leasing's implicit interest rate was 11%. The estimated useful life of the plane is eight years. Payments were calculated as follows: References Amount to be recovered (fair value) Lease payments at the beginning of each of the next eight years: ($571,220: 5.7122*) $571,220 $100,000 *Present value of an annuity due of $1: n = 8, i = 11%. b. Red Baron's incremental borrowing rate is 12%. c. Incremental Costs of negotiating and consummating the completed lease transaction incurred by Bidwell Leasing were $15,622. Required: 1. How should this lease be classified (a) by Bidwell Leasing (the lessor) and (b) by Red Baron (the lessee)? 2. Prepare the appropriate entries for both Red Baron Flying Club and Bidwell Leasing on January 1, 2021. 3. Prepare an amortization schedule that describes the pattern of interest expense over the lease term for Red Baron Flying Club. 4. Determine the effective rate of interest for Bidwell Leasing for the purpose of recognizing interest revenue over the lease term. 5. Prepare an amortization schedule that describes the pattern of interest revenue over the lease term for Bidwell Leasing. 6. Prepare the appropriate entries for both Red Baron and Bidwell Leasing on December 31, 2021 (the second lease payment). Both 2 Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Prepare the appropriate entries for both Red Baron Flying Club and Bidwell Leasing on January 1, 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate and final answers to nearest whole dollar.) 2.85 points View transaction list View journal entry worksheet x Skipped No Date General Journal Debit Credit 1 571,220 Print January 01, 2021 Right-of-use asset Lease payable 571,220 References 2 January 01, 2021 Lease payable 100.000 Cash 100,000 3 571,220 January 01, 2021 Lease receivable Cost of goods sold Sales revenue Equipment 4 January 01, 2021 Selling expense Cash LC 5 January 01, 2021 Cash Lease receivable 2 1.II Paicut appropriaLE CILICS QUI WOLITICU DAIN ANU DIUNCII Leasily VIVCLCMDCI JI, ZUZI MIC TICI Casc paylnici. Complete this question by entering your answers in the tabs below. 2.85 points Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Skipped Prepare an amortization schedule that describes the pattern of interest expense over the lease term for Red Baron Flying Club. (Round your intermediate and final answers to nearest whole dollar. Enter all amounts as positive values.) Print Lease Amortization Schedule Effective Decrease Interest in Balance Date Payments Outstanding Balance References 1/1/21 12/31/21 12/31/22 12/31/23 12/31/24 12/31/25 12/31/26 12/31/27 $ 0 $ 0 $ 0 2 2.85 points Required: 1. How should this lease be classified (a) by Bidwell Leasing (the lessor) and (b) by Red Baron (the lessee)? 2. Prepare the appropriate entries for both Red Baron Flying Club and Bidwell Leasing on January 1, 2021. 3. Prepare an amortization schedule that describes the pattern of interest expense over the lease term for Red Baron Flying Club. 4. Determine the effective rate of interest for Bidwell Leasing for the purpose of recognizing interest revenue over the lease term. 5. Prepare an amortization schedule that describes the pattern of interest revenue over the lease term for Bidwell Leasing. 6. Prepare the appropriate entries for both Red Baron and Bidwell Leasing on December 31, 2021 (the second lease payment). Both companies use straight-line depreciation. 7. Prepare the appropriate entries for both Red Baron and Bidwell Leasing on December 31, 2027 (the final lease payment). Skipped Print Complete this question by entering your answers in the tabs below. References Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Determine the effective rate of interest for Bidwell Leasing for the purpose of recognizing interest revenue over the lease term. (Round your intermediate and final answers to nearest whole dollar.) Effective rate of interest %
