Exercise 21-11

The following facts pertain to a non-cancelable lease agreement between Teal Mountain Leasing Company and Sandhill Company, a lessee.

Commencement date		May 1, 2020
Annual lease payment due at the beginning of
each year, beginning with May 1, 2020		$17,225.30
Bargain purchase option price at end of lease term		$4,000
Lease term		5	years
Economic life of leased equipment		10	years
Lessors cost		$55,000
Fair value of asset at May 1, 2020		$77,000
Lessors implicit rate		8	%
Lessees incremental borrowing rate		8	%

The collectibility of the lease payments by Teal Mountain is probable. Click here to view factor tables.

Compute the amount of the lease receivable at commencement of the lease. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round answer to 2 decimal places, e.g. 5,275.15.)

Lease receivable at commencement

$

Prepare a lease amortization schedule for Teal Mountain for the 5-year lease term. (Round answers to 2 decimal places, e.g. 5,275.15.)

TEAL MOUNTAIN LEASING COMPANY (Lessor) Lease Amortization Schedule
Date		Annual Lease Payment Plus BPO		Interest on Lease Receivable		Recovery of Lease Receivable		Lease Receivable
5/1/20		$		$		$		$
5/1/20
5/1/21
5/1/22
5/1/23
5/1/24
4/30/25
		$		$		$

Prepare the journal entries to reflect the signing of the lease agreement and to record the receipts and income related to this lease for the years 2020 and 2021. The lessors accounting period ends on December 31. Reversing entries are not used by Teal Mountain. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 5,275.15. Record journal entries in the order presented in the problem.)

Date	Account Titles and Explanation	Debit	Credit
	(To record the lease)
	(To record lease payment)

Suppose the collectibility of the lease payments was not probable for Teal Mountain. Prepare all necessary journal entries for the company in 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 5,275.15.)

Date

Account Titles and Explanation

Debit