Problem 120

Lucas, Inc. enters into a lease agreement as lessor on January 1, 2018, to lease an airplane to National Airlines. The term of the noncancelable lease is 9 years and payments are required at the beginning of each year. The following information relates to this agreement:

1.		National Airlines has the option to purchase the airplane for $12,001,300 when the lease expires at which time the fair value is expected to be $20,000,500.
2.		The airplane has a cost of $51,000,800 to Lucas, an estimated useful life of 13 years, and a salvage value of zero at the end of that time (due to technological obsolescence).
3.		National Airlines will pay all executory costs related to the leased airplane.
4.		Annual beginning of year lease payments of $6,669,564 allow Lucas to earn an 8% return on its investment.
5.		Collectibility of the payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by Lucas.

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What type of lease is this? Direct-financing type leaseSales-type lease

Prepare a lease amortization schedule for the lessor for the first two years (2018-2019). (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 5,275.)

Lucas, Inc. Lessor's Lease Amortization Schedule
Date		Annual Lease Payment		Interest on Lease Receivable		Lease Receivable Recovery		Lease Receivable
1/1/18								$
1/1/18		$		$		$
1/1/19

Prepare the journal entries on the books of the lessor to record the lease agreement, to reflect payments received under the lease, and to recognize revenue, for 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
January 1, 2018
	(To record receipt of the first lease payments)
December 31, 2018
	(To record interest earned during the first year of the lease)

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