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Sunbeam Leasing Company ( SLC ) signs an agreement on January 1 , 2 0 2 4 to lease equipment to Diverse Inc. ( Diverse
Sunbeam Leasing Company SLC signs an agreement on January to lease equipment to Diverse Inc. Diverse The following information relates to this agreement.
The term of the noncancellable lease is five years, with no renewal option.
The equipment has an economic useful life of six years.
The asset's fair value on January is $
The equipment will revert back to SCL the lessor at the end of the lease term, at which time the equipment is expected to have a residual value of $ which is guaranteed. The agreement requires equal annual payments of $ to SLC the lessor, starting on January
Diverse assumes responsibility for all executory costs, which include $ of maintenance expense and $ of insurance. You can assume these payments are made at the end of each year.
Both SLC and Diverse follow ASPE and use straight line depreciation for all equipment. Diverse's incremental rate of borrowing is and SLCs implicit rate of interest is This implicit rate of is known by Diverse.
Required:
a Calculate the PV of the future minimum lease payments.
b Prepare the amortization schedule for Diverse.
c Prepare all journal entries Diverse will record for assuming the company has a December year end. Diverse does not use reversing entries.
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