Exercise 21-05 Larkspur Leasing Company signs an agreement on January 1, 2020, to lease equipment to Cole Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years. 2. The cost of the asset to the lessor is $301,000. The fair value of the asset at January 1, 2020, is $301,000. 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 $31,010, none of which is guaranteed. The agreement requires equal annual rental payments, beginning on January 1, 2020. 5. Collectibility of the lease payments by Larkspur is probable. 4. Click here to view factor tables. x Your answer is incorrect. Try again. Assuming the lessor desires a 8% rate of return on its investment, calculate the amount of the annual rental payment required. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and the final answer to o decimal places e.g. 5,275.) Amount of the annual rental payment 58176.51 Prepare an amortization schedule that is suitable for the lessor for the lease term. (Round answers to 0 decimal places e.g. 5,275.) LARKSPUR LEASING COMPANY (Lessor) Lease Amortization Schedule Annual Lease Payment Plus Interest on Lease Recovery of Lease Date URV Receivable Receivable Lease Receivable 1/1/20 310000 1/1/20 58177 0 58177 251,823 X 1/1/21 58177 20,145.88 38031 213,793 X 1/1/22 58177 17,103.43 41073 172,720 1/1/23 58177 13,817.58 44359 128,361 X X 1/1/24 58177 10,268.87 47908 80,453 1/1/25 58177 6,436.26 51740 28,713 12/31/25 31010 2,297.04 28713 0 380069 70,069.06 310000 Prepare all of the journal entries for the lessor for 2020 and 2021 to record the lease agreement, the receipt of lease payments, and the recognition of revenue. Assume the lessor's annual accounting period ends on December 31, and it does not use reversing entries. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit 1/1/20 Lease Receivable 310000 Cost of Goods Sold Sales Revenue 310000 Inventory (To record the lease) 1/1/20 Cash 58177 Lease Receivable 58177 (To record the receipt of lease payment) 12/31/20 Lease Receivable 20,145.88 Interest Revenue 20,145.88 [1/1/21 Cash 20145.88 Lease Receivable 20145.88 12/31/21 Lease Receivable 17103.43 Interest Revenue 17103.43
