Exercise 21-8

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

Inception date:		May 1, 2014
Annual lease payment due at the beginning of
each year, beginning with May 1, 2014		$19,313.54
Bargain-purchase option price at end of lease term		$3,970.00
Lease term		5	years
Economic life of leased equipment		10	years
Lessors cost		$68,000.00
Fair value of asset at May 1, 2014		$83,000.00
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.

Prepare a lease amortization schedule for Rode Company for the 5-year lease term.

ease Amortization Schedule
Date	Annual Lease Payment Plus BPO	Interest on Liability	Reduction of Lease Liability	Lease Liability
5/1/14	-	-	-	83,000.00
5/1/14	19,313.54
5/1/15	19,313.54
5/1/16	19,313.54
5/1/17	19,313.54
5/1/18	19,313.54
4/30/19	19,313.54
Total

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 2014 and 2015. Rodes annual accounting period ends on December 31. Reversing entries are used by Rode.

Date	Account	Debit	Credit
5/1/14	Leased Equipment	83,000.00
	Lease Liability		83,000.00
5/1/14 (to record first lease payment)	Lease Liability
	Cash
5/1/15	Interest Expense
	Lease Liability
	Cash