Exercise 21-8

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

Inception date:		May 1, 2017
Annual lease payment due at the beginning of
each year, beginning with May 1, 2017		$22,606.93
Bargain-purchase option price at end of lease term		$4,400
Lease term		5	years
Economic life of leased equipment		10	years
Lessors cost		$65,000
Fair value of asset at May 1, 2017		$97,000
Lessors implicit rate		10	%
Lessees 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). Click here to view factor tables

Prepare a lease amortization schedule for Wildhorse 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.)

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. Wildhorses annual accounting period ends on December 31. Reversing entries are used by Wildhorse. (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.)