Question
Bidwell Leasing purchased a single-engine plane for its fair value of $834,564 and leased it to Red Baron Flying Club on January 1, 2021. (FV
Bidwell Leasing purchased a single-engine plane for its fair value of $834,564 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.) Terms of the lease agreement and related facts were:
- Eight annual payments of $150,000 beginning January 1, 2021, the beginning of the lease, and at each December 31 through 2027. Red Baron knows that Bidwell Leasings implicit interest rate was 12%. The estimated useful life of the plane is eight years. Payments were calculated as follows:
Amount to be recovered (fair value) | $ | 834,564 | |
Lease payments at the beginning of each of the next eight years: ($834,564 5.56376*) | $ | 150,000 | |
*Present value of an annuity due of $1: n = 8, i = 12%.
- Red Baron's incremental borrowing rate is 13%.
- Incremental Costs of negotiating and consummating the completed lease transaction incurred by Bidwell Leasing were $22,267.
Required: 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).
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). Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Prepare an amortization schedule that describes the pattern of interest revenue over the lease term for Bidwell Leasing. (Round your intermediate and final answers to nearest whole dollar. Enter all amounts as positive values.) Lease Amortization Schedule Effective Decrease Payments Interest in Balance Date Outstanding Balance 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 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. (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.) View transaction list Journal entry worksheet Record the lease payment for Red Baron Flying Club. Note: Enter debits before credits. Date General Journal Debit Credit December 31, 2021 Record entry Clear entry View general journal Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Prepare the appropriate entries for both Red Baron and Bidwell Leasing on December 31, 2027 (the final lease payment). (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.) View transaction list Journal entry worksheet Record the lease payment for Red Baron Flying Club. Note: Enter debits before credits. Date General Journal Debit Credit December 31, 2027 Record entry Clear entry View general journal 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). Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Prepare an amortization schedule that describes the pattern of interest revenue over the lease term for Bidwell Leasing. (Round your intermediate and final answers to nearest whole dollar. Enter all amounts as positive values.) Lease Amortization Schedule Effective Decrease Payments Interest in Balance Date Outstanding Balance 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 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. (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.) View transaction list Journal entry worksheet Record the lease payment for Red Baron Flying Club. Note: Enter debits before credits. Date General Journal Debit Credit December 31, 2021 Record entry Clear entry View general journal Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Prepare the appropriate entries for both Red Baron and Bidwell Leasing on December 31, 2027 (the final lease payment). (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.) View transaction list Journal entry worksheet Record the lease payment for Red Baron Flying Club. Note: Enter debits before credits. Date General Journal Debit Credit December 31, 2027 Record entry Clear entry View general journalStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started