Exercise 21-8 (Part Level Submission)

The following facts pertain to a noncancelable lease agreement between Culver Leasing Company and Larkspur Company, a lessee.

Inception date:		May 1, 2017
Annual lease payment due at the beginning of
each year, beginning with May 1, 2017		$21,763.30
Bargain-purchase option price at end of lease term		$4,200
Lease term		5	years
Economic life of leased equipment		10	years
Lessors cost		$61,000
Fair value of asset at May 1, 2017		$95,000
Lessors implicit rate		9	%
Lessees incremental borrowing rate		9	%

The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs. The expected residual value of the equipment at the end of 5 (10) years is $12,000 ($0). Click here to view factor tables

(c)

	Your answer is correct.

Prepare a lease amortization schedule for Larkspur Company for the 5-year lease term. (Round present value factor calculations to 5 decimal places, e.g. 1.25126 and Round answers to 2 decimal places, e.g. 15.25.)

LARKSPUR COMPANY (Lessee) Lease Amortization Schedule
Date		Annual Lease Payment Plus BPO		Interest on Liability		Reduction of Lease Liability		Lease Liability
5/1/17		$		$		$		$
5/1/17
5/1/18
5/1/19
5/1/20
5/1/21
4/30/22
		$		$		$

SHOW LIST OF ACCOUNTS SHOW SOLUTION SHOW ANSWER
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Attempts: 1 of 3 used

(d)

Prepare the journal entries on the lessees books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2017 and 2018. Larkspurs annual accounting period ends on December 31. Reversing entries are used by Larkspur. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and Round answers to 2 decimal places, e.g. 15.25.)

Date	Account Titles and Explanation	Debit	Credit
5/1/1712/31/171/1/185/1/1812/31/18
	(To record the lease.)
	(To record the first lease payment.)
5/1/1712/31/171/1/185/1/1812/31/18
	(To To record interest.)
	(To record depreciation.)
5/1/1712/31/171/1/185/1/1812/31/18
5/1/18
5/1/1712/31/171/1/185/1/1812/31/18
	(To record interest.)
	(To record depreciation.)