Exercise 21-8 (Part Level Submission)

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

Inception date: May 1, 2017

Annual lease payment due at the beginning ofeach year, beginning with May 1, 2017 $20,253.44

Bargain-purchase option price at end of lease term $4,100

Lease term 5years

Economic life of leased equipment 10years

Lessor's cost $66,000

Fair value of asset at May 1, 2017 $87,000

Lessor's implicit rate 10%

Lessee's incremental borrowing rate 10%

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).

(c)

Prepare lease amortization schedule for Sarasota 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.)

(d) Prepare the journal entries on the lessee's 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. Sarasota's annual accounting period ends on December 31. Reversing entries are used by Sarasota.