Question 1

Laura Leasing Company signs an agreement on January 1, 2017, to lease equipment to Riverbed 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, 2017, is $76,700. 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 $6,800, none of which is guaranteed. 4. Riverbed Company assumes direct responsibility for all executory costs, which include the following annual amounts: (1) $940 to Rocky Mountain Insurance Company for insurance and (2) $1,470 to Laclede County for property taxes. 5. The agreement requires equal annual rental payments of $17,048.41 to the lessor, beginning on January 1, 2017. 6. The lessees incremental borrowing rate is 12%. The lessors implicit rate is 9% and is known to the lessee. 7. Riverbed Company uses the straight-line depreciation method for all equipment. 8. Riverbed uses reversing entries when appropriate.

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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.)

RIVERBED COMPANY (Lessee) Lease Amortization Schedule Date Annual Lease Payment Interest on Liability Reduction of Lease Liability Lease Liability 1/1/17 $ $ $ $ 1/1/17 1/1/18 1/1/19 1/1/20 1/1/21 $ $ $

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Prepare all of the journal entries for the lessee for 2017 and 2018 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. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 2 decimal places, e.g. 15.25.)

Date Account Titles and Explanation Debit Credit 1/1/17 12/31/17 1/1/18 12/31/18 During 2017 During 2018 (To record the lease.) (To record lease payment.) 1/1/17 12/31/17 1/1/18 12/31/18 During 2017 During 2018 (To record insurance payment.) (To record property tax payment.) 1/1/17 12/31/17 1/1/18 12/31/18 During 2017 During 2018 (To record interest.) (To record depreciation.) 1/1/17 12/31/17 1/1/18 12/31/18 During 2017 During 2018 (To reverse interest.) (To record lease payment.) 1/1/17 12/31/17 1/1/18 12/31/18 During 2017 During 2018 (To record insurance payment.) (To record property tax payment.) 1/1/17 12/31/17 1/1/18 12/31/18 During 2017 During 2018 (To record interest.) (To record depreciation.)