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orgain Purchase Option Lessee/Lessor Example (from E21-10 and E 21-11) Exercise 7: Barg information pertains to a noncancelable lease agreement between Mooney Leasing Co. The following into and Rode Co., a lessee: Inception date Annual lease pyn Bargain-purchase option Lease term lease pymt due at beginning of each year (5/1/17) in-purchase option price at end of lease term onomic life of leased equipment Lessor's cost COGS: Fair value of asset at 571/17 Lessor's implicit rate Lessee's incremental borrowing rate 5/1/17 $20,471.94 4,000.00 5 years 10 years $65,000 $91,000 (8% collectability of the lease payments is probable. 2. Discuss the nature of this lease to Rode Co. lessee 5/10 (100% - 50% operating pr & 88278 2 91000 = leare Liability pv option=27222 lessor b. Discuss the nature of this lease to Mooney Co. 5 x 100%= 50% operating FV = 91000 prophon= 2722 88278 pint= 2047? 28 TV Exercise 7 (entd.) c. Prepare a lease amortization schedule for Rode Co. (lessee) for the 5-year lease term. Amortization Schedule: 8% Reduction Lease Interest of Lease Date Payment Expense Payable 5/1/2017 5/1/2017 20471.94 COG71.94 5/1/2018 20471.564 2. 14820 5/1/2019 20471.944456 16 016. 5/1/2020 70471.94 3175 17097 5/1/2021 20471.94 1791 1989.1 4/30/2022 2000 296.32.3704 Lease Payable 1000 70522.06 155698 39682 22385 3704 . d. Prepare the necessary journal entries for the lessee's books to reflect the signing of agreement and to record the payments and expenses related to this lease for the years and 2018. Rode's annual accounting period ends on December 31. Reversing entrie used by Rode the years 2017 Exercise 7 (cntd.) 12/31/17: Interest Expense 3761 Il payable 3761 Depreciation Expense 6067 Accumbited Depreciation. 6067 5/1/18: 511/18 ILE no Il payable 3761 Il Expense. 3761 teas 12/31/18: 2971 Interest Expense. 2971 Ill Repreciation Expense 9 100 Acc Exercise 7 (entd.) e. For the lessor, compute the amount of the lease receivable at the lease inception. Dr. now e propition 91000 f. Prepare a lease amortization schedule for Mooney for the 5-year lease term (note-is amortization schedule any different than for lessee? Why or why not?) Amortization Schedule: 8% Lease Interest Date Payment Revenue 5/1/2017 5/1/2017 2047.94 5/1/2018 204.915647 5/1/2019 20471.94 4456 5/1/2020 20471.94 3175 5/1/20212041197 11 4/30/2022 2000 296 Recovery of Lease Lease Receivable Receivable 9.1000 20471.94 1057 14830. 55698 16016 55 17297 2 7325 186813704 2704 Exercise 7 (entd.) g. Prepare the new are the necessary journal entries for the lessor's books to reflect the signing of the lease Sement and to record the receipts and income related to this lease for the years 2017 and 18 Rode's annual accounting period ends on December 31. Reversing entries are not used by Mooney. 5/1/17: leare. Recepable COGS Sale - Inventory 91000. 85000 91000 66000 12/31/17: Interest Recerable 3761 Il Revenue 3761 20471.96 5/1/18: Cash 3761 1881 IIR Il Reveme lease Recerahle 14830 12/31/18: Il Recerrable. Il Revane 2970,6 29706 orgain Purchase Option Lessee/Lessor Example (from E21-10 and E 21-11) Exercise 7: Barg information pertains to a noncancelable lease agreement between Mooney Leasing Co. The following into and Rode Co., a lessee: Inception date Annual lease pyn Bargain-purchase option Lease term lease pymt due at beginning of each year (5/1/17) in-purchase option price at end of lease term onomic life of leased equipment Lessor's cost COGS: Fair value of asset at 571/17 Lessor's implicit rate Lessee's incremental borrowing rate 5/1/17 $20,471.94 4,000.00 5 years 10 years $65,000 $91,000 (8% collectability of the lease payments is probable. 2. Discuss the nature of this lease to Rode Co. lessee 5/10 (100% - 50% operating pr & 88278 2 91000 = leare Liability pv option=27222 lessor b. Discuss the nature of this lease to Mooney Co. 5 x 100%= 50% operating FV = 91000 prophon= 2722 88278 pint= 2047? 28 TV Exercise 7 (entd.) c. Prepare a lease amortization schedule for Rode Co. (lessee) for the 5-year lease term. Amortization Schedule: 8% Reduction Lease Interest of Lease Date Payment Expense Payable 5/1/2017 5/1/2017 20471.94 COG71.94 5/1/2018 20471.564 2. 14820 5/1/2019 20471.944456 16 016. 5/1/2020 70471.94 3175 17097 5/1/2021 20471.94 1791 1989.1 4/30/2022 2000 296.32.3704 Lease Payable 1000 70522.06 155698 39682 22385 3704 . d. Prepare the necessary journal entries for the lessee's books to reflect the signing of agreement and to record the payments and expenses related to this lease for the years and 2018. Rode's annual accounting period ends on December 31. Reversing entrie used by Rode the years 2017 Exercise 7 (cntd.) 12/31/17: Interest Expense 3761 Il payable 3761 Depreciation Expense 6067 Accumbited Depreciation. 6067 5/1/18: 511/18 ILE no Il payable 3761 Il Expense. 3761 teas 12/31/18: 2971 Interest Expense. 2971 Ill Repreciation Expense 9 100 Acc Exercise 7 (entd.) e. For the lessor, compute the amount of the lease receivable at the lease inception. Dr. now e propition 91000 f. Prepare a lease amortization schedule for Mooney for the 5-year lease term (note-is amortization schedule any different than for lessee? Why or why not?) Amortization Schedule: 8% Lease Interest Date Payment Revenue 5/1/2017 5/1/2017 2047.94 5/1/2018 204.915647 5/1/2019 20471.94 4456 5/1/2020 20471.94 3175 5/1/20212041197 11 4/30/2022 2000 296 Recovery of Lease Lease Receivable Receivable 9.1000 20471.94 1057 14830. 55698 16016 55 17297 2 7325 186813704 2704 Exercise 7 (entd.) g. Prepare the new are the necessary journal entries for the lessor's books to reflect the signing of the lease Sement and to record the receipts and income related to this lease for the years 2017 and 18 Rode's annual accounting period ends on December 31. Reversing entries are not used by Mooney. 5/1/17: leare. Recepable COGS Sale - Inventory 91000. 85000 91000 66000 12/31/17: Interest Recerable 3761 Il Revenue 3761 20471.96 5/1/18: Cash 3761 1881 IIR Il Reveme lease Recerahle 14830 12/31/18: Il Recerrable. Il Revane 2970,6 29706