Question
Laura Leasing Company signs an agreement on January 1, 2014, to lease equipment to Plote Company. The following information relates to this agreement. 1. The
Laura Leasing Company signs an agreement on January 1, 2014, to lease equipment to Plote Company. The following information relates to this agreement.
1. The term of the noncancelable lease is 5 years with no renewal option. The equipment has an estimated economic life of 5 years.
2. The fair value of the asset at January 1, 2014, is $86,200.
3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $6,690, none of which is guaranteed.
4. Plote Company assumes direct responsibility for all executory costs, which include the following annual amounts: (1) $885 to Rocky Mountain Insurance Company for insurance and (2) $1,699 to Laclede County for property taxes.
5. The agreement requires equal annual rental payments of $19,675.93 to the lessor, beginning on January 1, 2014.
6. The lessees incremental borrowing rate is 12%. The lessors implicit rate is 10% and is known to the lessee.
7. Plote Company uses the straight-line depreciation method for all equipment.
8. Plote uses reversing entries when appropriate.
a)Prepare an amortization schedule that would be suitable for the lessee for the lease term. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and Round answers to 2 decimal places, e.g. 15.25.)
1/1/14 1/1/14 1/1/15 1/1/16 1/1/17 1/1/18
b)Prepare all of the journal entries for the lessee for 2014 and 2015 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee's annual accounting period ends on December 31.
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