Sheridan Corporation manufactures specialty equipment with an estimated economic life of 12 years and leases it to Provincial Airlines Corp. for a period of 10 years. Both Sheridan and Provincial Airlines follow ASPE. The equipments normal selling price is $210,482 and its unguaranteed residual value at the end of the lease term is estimated to be $17,000. Provincial Airlines will make annual payments of $25,400 at the beginning of each year and pay for all maintenance and insurance. Sheridan incurred costs of $105,000 in manufacturing the equipment and $7,000 in negotiating and closing the lease. Sheridan has determined that the collectibility of the lease payments is reasonably predictable, that no additional costs will be incurred, and that the implicit interest rate is 8%. Provincial Airlines Corp. has an incremental borrowing rate of 8%.

Using time value of money tables, a financial calculator, or Excel functions, calculate the amount of the initial obligation under capital leases. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 5,275.)

Initial Obligations Under Leases

$Enter your answer in accordance to the question statement

Prepare a 10-year lease amortization schedule for the lease obligation using Excel. (Round answers to 0 decimal places, e.g. 5,275.)

Provincial Airlines Corp. (Lessee) Lease Amortization Schedule (Annuity due basis and URV)
Beginning of Year		Annual Lease Payment		Interest on Unpaid Obligation		Reduction of Lease Obligation		Lease Obligation
Initial PV								$
1		$				$
2
3
4
5
6
7
8
9
10
		$		$		$

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Part 5

Prepare all of the lessees journal entries for the first year, assuming that the lease year and Provincial Airlines fiscal year are the same. (Credit account titles are automatically indented when the 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 0 decimal places, e.g. 5,275.)

Account Titles and Explanation	Debit	Credit
Beginning of the Year
(To record inception of lease and first lease payment.)
End of the Year
(To record interest.)
(To record depreciation expense.)

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Part 6

Prepare the entries in part (f) again, assuming that the residual value of $17,000 was guaranteed by the lessee. (Credit account titles are automatically indented when the 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 0 decimal places, e.g. 5,275.)

Account Titles and Explanation	Debit	Credit
Beginning of the Year
(To record inception of lease and first lease payment.)
End of the Year
(To record interest.)
(To record depreciation expense.)