Question 12

The following facts pertain to a non-cancelable lease agreement between Shamrock Leasing Company and Pharoah Company, a lessee.

Commencement date		May 1, 2020
Annual lease payment due at the beginning of
each year, beginning with May 1, 2020		$17,865.02
Bargain purchase option price at end of lease term		$7,000
Lease term		5	years
Economic life of leased equipment		10	years
Lessors cost		$65,000
Fair value of asset at May 1, 2020		$85,000
Lessors implicit rate		6	%
Lessees incremental borrowing rate		6	%

The collectibility of the lease payments by Shamrock is probable.

Compute the amount of the lease receivable at commencement of the lease. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round answer to 2 decimal places, e.g. 5,275.15.)

Prepare a lease amortization schedule for Shamrock for the 5-year lease term. (Round answers to 2 decimal places, e.g. 5,275.15.)

Prepare the journal entries to reflect the signing of the lease agreement and to record the receipts and income related to this lease for the years 2020 and 2021. The lessors accounting period ends on December 31. Reversing entries are not used by Shamrock. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 5,275.15. Record journal entries in the order presented in the problem.)

Suppose the collectibility of the lease payments was not probable for Shamrock. Prepare all necessary journal entries for the company in 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 5,275.15.)