Exercise 21-11 (Part Level Submission) Laura Leasing Company signs an agreement on January 1, 2017, to lease equipment to Bridgeport Company. The following information relates to this agreement. 1. The term of the noncancelable lease is 5 years with no renewal option. The equipment has an estimated economic life of 5 years 2. The fair value of the asset at January 1, 2017, is $74,100 3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $6,900, none of which is guaranteed 4, Bridgeport Company assumes direct responsibility for all executory costs, which include the following annual amounts: (1) $850 to Rocky Mountain Insurance Company for insurance and (2) $1,750 to Laclede County for property taxes 5. The agreement requires equal annual rental payments of $16,742.92 to the lessor, beginning on January 1, 2017 6. The lessee's incremental borrowing rate is 12%. The lessor's implicit rate is 10% and is known to the lessee 7. Bridgeport Company uses the straight-line depreciation method for all equipment 8. Bridgeport uses reversing entries when appropriate (a) Prepare an amortization schedule that would be suitable for the lessee for the lease term. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and Round answers to 2 decimal places, e.g. 15.25.) BRIDGEPORT COMPANY (Lessee) Lease Amortization Schedule Annual Lease Payment Interest on Liability Reduction of Lease Liability Date Lease Liability 1/1/20 1/1/21 Account Titles and Explanation Debit Credit Leased Equipment Lease Liability To record the lease.) Lease Liability Cash (To record lease payment.) During 2017 naceExpense Cash To record insurance payment) Property Tax Expense Cash (To record property tax payment.) 12/31/17 Interest Expense Interest Payable (To record interest.) Depreciation Expense Accumulated DepreciationCapital Leases To record depreciation.) Interest Payable Interest Expense (To reverse interest.) Interest Expense Lease Liability Cash To record lease payment.) During 2018 Insurance Expense Cash To record insurance payment.) ense Cash To record property tax payment.) 12/31/18 Interest Expense Interest Payable (To record interest.) Depreciation Expense Accumulated Depreciation-Capital Leases To record depreciation.)
