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Mid - South Auto Leasing leases vehicles to consumers. The attraction to customers is that the company can offer competitive prices due to volume buying
MidSouth Auto Leasing leases vehicles to consumers. The attraction to customers is that the company can offer competitive prices due to volume buying and requires an interest rate implicit in the lease that is one percent below alternate methods of financing. On September the company leased a delivery truck to a local florist, Anything Grows. The fiscal year for both companies ends December The lease agreement specified quarterly payments of $ beginning September the beginning ofthe lease, and each quarter December March and June through June threeyear lease term The florist had the option to purchase the truck on September for $ when it was expected to have a residual value of $ The estimated useful life of the truck is four years. MidSouth Auto Leasings quarterly interest rate for determining payments was approximately annually MidSouth paid $ for the truck. Both companies use straightline depreciation or amortization. Anything Grows incremental interest rate is Hint: A lease term ends for accounting purposes when an option becomes exercisable if its expected to be exercised ie a BPO Required: Calculate the amount of selling profit that MidSouth would recognize in this salestype lease. Be careful to note that, although payments occur on the last calendar day of each quarter, since the first payment was at the beginning of the lease, payments represent an annuity due.Prepare the appropriate entries for Anything Grows and MidSouth on September Prepare an amortization schedules describing the pattern of interest expense for Anything Grows and interest revenue for MidSouth Auto Leasing over the lease term. Prepare the appropriate entries for Anything Grows and MidSouth Auto Leasing on December Prepare the appropriate entries for Anything Grows and MidSouth on September assuming the purchase option was exercised on that date
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