Landlord Company and Tenant Company enter into a noncancelable, direct financing lease on January 1, 2019, for nonspecialized equipment that cost the Landlord $280,000 (useful life Is 6 years with no residual value). The fair value the equipment is $300,000. The Interest rate Implicit in the lease is 14%. The 6-year lease requires 6 equal amounts payable each January 1, beginning with January 1, 2019. Tenant pays all executory costs directly to a third party on December 1 of each year. The equipment reverts to the lessor at the termination of the lease. Assume that there are no initial direct costs. Lanlord expects to collect all rental payments. Required: 1. Next Level Show how Landlord should compute the annual rental amounts. 2. Next Level Prepare a table summarizing the lease and Interest receipts that would be suitable for Landlord 3. Assuming that the table prepared in Requirement 2 is suitable for both the lessee and the lessor, prepare the journal entries for both firms for the years 2019 and 2020. Use the straight-line depreciation method for the leased equipment. The executory costs paid by the lessee are in 2010: Insurance, $700 and property taxes, $800; in 2020: Insurance, $600 and property taxes, $750. 4. Next Level Show the items and amounts that would be reported on the comparative 2019 and 2020 Income statements and ending balance sheets for both the lessor and the lessee, using the change in present value approach. Chart of Accounts-Lessee CHART OF ACCOUNTS Tenant Company General Ledger ASSETS 111 Cash 121 Accounts Receivable 123 Prepaid Insurance 141 Inventory 181 Equipment 189 Accumulated Depreciation 191 Right-of-Use Asset LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Interest 256 Lease Liability 261 Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings REVENUE 411 Sales Revenue EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 513 Rent Expense 517 Amortization Expense 521 Salaries Expense 532 Bad Debt Expense 533 Property Tax Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense Chart of Accounts-Lessor CHART OF ACCOUNTS Landlord Company General Ledger ASSETS 111 Cash 121 Accounts Receivable 122 Lease Receivable 123 Prepaid Insurance 141 Inventory 181 Equipment 189 Accumulated Depreciation 190 Equipment Leased to Others LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Interest REVENUE 411 Sales Revenue 432 Interest Income EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 513 Rent Expense 521 Salaries Expense 532 Bad Debt Expense 533 Property Tax Expense 540 Interest Expense 541 Depreciation Expense 261 Income Taxes Payable 559 Miscellaneous Expenses 910 Income Tax Expense EQUITY 311 Common Stock 331 Retained Earnings Next Level Show how Landlord should compute the annual rental amounts Additional instruction $67,673.00 x Points: 0/1 Feedback Check My Work Calculate rental payments using the fair value and the factor in the present value of an annulty due for six periods at 14% Prepare a table summarizing the lease and interest receipts that would be suitable for Landlord Additional instructions LANDLORD COMPANY Interest Revenue Recognition and Lease Payments Received Summary Date Score: 33/47 2019-2024 Annual Lease Interest Income Payments Lease Receivable at 14% Received 2 January 1, 2019 January 1, 2019 4 December 31, 2019 $300,000.00 $67,673.02 232,327.00 $32,525.78 197,179.80 5 January 1, 2020 67,673.02 157,111.90 6 December 31, 2020 27,605.17 111,434.60 7 January 1, 2021 67,673.02 59,362.47 December 31, 2021 21,995.67 0.00 January 1, 2022 67,673.02 0.00 10 December 31, 2022 15,600.85 0.00 11 January 1,2023 67,673.02 0.00 12 December 31, 2023 8,310.75 0.00 13 January 1,2024 67,673.02 0.00 Points 16.15/23 Prepare the journal entries for the lessee for the year 2019. General Journal Instructions How does grading work? GENERAL JOURNAL FAGE 2019 Score: 90/138 DATE Jan. 1 Right-of-Use Asset ACCOUNT TITLE POST. REF. DEBIT CREDIT 300,000.00 2 Lease Liability 300,000.00 E Jan.1 Lease Liability 67,673.00 4 Cash 67,673.00 5 Jan.1 Depreciation Expense 50,000.00 6 Accumulated Depreciation 50,000.00 7 Jan 1 Interest Expense 32,526.00 Lease Liability 35,147,00 9 Cash 67,673.00 10 Jan 1 Depreciation Expense 50,000.00 11 Accumulated Depreciation 50,000.00 Feedback Prepare the journal entries for the lessee for the year 2020. How does grading work? FAGE 2020 Score: 46/113 GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF DEBIT CREDIT 1 Jan 1 Lease Receivable 2 300,000.00 E Equipment Leased to Others Jan.1 Cash 300,000.00 67,673.00 4 Lease Receivable 67,673.00 5 Jan 1 Cash 67,673.00 6 Interest Income 32,526.00 7 Lease Receivable 35,147.00 Jan.1 Depreciation Expense 50,000.00 9 Accumulated Depreciation 50,000.00 Assuming that the table prepared in Requirement 2 is suitable for both the lessee and the lessor, prepare the journal entries for both firms for the years 2019 and 2020. Use the straight-line depreciation method for the leased equipment. The executory costs paid by the lessee are in 2019: Insurance, $700 and property taxes, $800; in 2020: Insurance, $600 and property taxes, $750. Prepare the journal entries for the lessor for the year 2019. General Journal Instructions Question not attempted. GENERAL JOURNAL DATE ACCOUNT TITLE 1 2 4 6 7 Feedback Prepare the journal entries for the lessor for the year 2020. Question not attempted. GENERAL JOURNAL DATE ACCOUNT TITLE 1 2 4 POST. REF. DEBIT PAGE 2019 Score: 0/101 CREDIT PAGE 2020 Score: 0/51 POST. REF. DEBIT CREDIT Points: 0/20 Points: 0/10 Financial Statements-Lessee Show the amounts that would be reported on the comparative 2019 and 2020 income statement for the Tenant Company. Question not attempted. 1 1 Expenses: E Interest expense 4 Insurance expense Property tax expense 6 Amortization expense Feedback TENANT COMPANY DISCLOSURE Score: 0/32 Comparative Income Statements (Partial) For Year Ended December 31 2020 2019 Show the amounts that would be reported on the comparative 2019 and 2020 balance sheet for the Tenant Company using the change in present value approach. Question not attempted. TENANT COMPANY DISCLOSURE 1 2 E Comparative Balance Sheets (Partial) December 31 Assets Right-of-Use Asset Liabilities 4 5 Current liabilities: 6 Lease Liability 7 7 Noncurrent liabilities: Lease liability Feedback Score: 0/24 2020 2019 Points: 0/8 Points: 0/6 Financial Statements-Lessor Show the amounts that would be reported on the comparative 2019 and 2020 Income statement for the Landlord Company. 1 2 Revenues: E Interest Income LANDLORD COMPANY Comparative Income Statements (Partial) For Year Ended December 31 Score: 0/8 2020 2019 $0.00 $32,526.00 Points: 10/2 Show the amounts that would be reported on the comparative 2019 and 2020 balance sheet for the Landlord Company using the change in present value approach. 1 2 3 Current assets: 4 Lease receivable 5 Noncurrent assets: 6 Lease receivable LANDLORD COMPANY Comparative Balance Sheets (Partial) Assets December 31 Score: 0/15 2020 2019 $250,000.00 $250,000.00 $232,327.00 $197,180.00 Points: 0/4