Problem 21-6

The following facts pertain to a noncancelable lease agreement between Faldo Leasing Company and Vance Company, a lessee.

Inception date		January 1, 2014
Annual lease payment due at the beginning of each year, beginning with January 1, 2014		$122,199
Residual value of equipment at end of lease term, guaranteed by the lessee		$77,000
Lease term		6	years
Economic life of leased equipment		6	years
Fair value of asset at January 1, 2014		$615,000
Lessors implicit rate		11	%
Lessees incremental borrowing rate		11	%

The lessee assumes responsibility for all executory costs, which are expected to amount to $5,780 per year. The asset will revert to the lessor at the end of the lease term. The lessee has guaranteed the lessor a residual value of $77,000. The lessee uses the straight-line depreciation method for all equipment.

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 the final answer to 0 decimal places e.g. 58,971.)

VANCE COMPANY (Lessee) Lease Amortization Schedule
Date		Annual Lease Payment Plus GRV		Interest on Liability		Reduction of Lease Liability		Lease Liability
1/1/14								$
1/1/14		$		$		$
1/1/15
1/1/16
1/1/17
1/1/18
1/1/19
12/31/19
		$		$		$

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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 lessees annual accounting period ends on December 31 and reversing entries are used when appropriate. All executory costs are paid as incurred. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 58,971.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1, 2014
	(To record the lease.)
	(To record first lease payment.)
During 2014
Dec. 31, 2014
	(To record interest.)
	(To record depreciation.)
Jan. 1, 2015
	(To reverse the December 31 entry.)
	(To record the second lease payment.)
During 2015
Dec. 31, 2015
	(To record interest.)
	(To record depreciation.)