The following facts pertain to a noncancelable lease agreement between Bramble Leasing Company and McKee Electronics, a lessee, for a computer system.
| Inception date | | October 1, 2017 | |
| Lease term | | 6 | years |
| Economic life of leased equipment | | 6 | years |
| Fair value of asset at October 1, 2017 | | $255,349 | |
| Residual value at end of lease term | | 0 | |
| Lessors implicit rate | | 10 | % |
| Lessees incremental borrowing rate | | 10 | % |
| Annual lease payment due at the beginning of | | | |
| each year, beginning with October 1, 2017 | | $53,300 | |
The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs, which amount to $6,700 per year and are to be paid each October 1, beginning October 1, 2017. (This $6,700 is not included in the rental payment of $53,300.) The asset will revert to the lessor at the end of the lease term. The straight-line depreciation method is used for all equipment. The following amortization schedule has been prepared correctly for use by both the lessor and the lessee in accounting for this lease. The lease is to be accounted for properly as a capital lease by the lessee and as a direct-financing lease by the lessor.
Problem 21-5 The following facts pertain to a noncancelable lease agreement between Bramble Leasing Company and McKee Electronics, a lessee, for a computer system Inception date October 1, 2017 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at October , 2017 $255,349 Residual value at end of lease term Lessor's implicit rate 10% 10% Lessee's incremental borrowing rate Annual lease payment due at the beginning of each year, beginning with October 1, 2017 $53,300 The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs, which amount to 6,700 per year and are to be paid each October 1, beginning October 1, 2017, (This $6,700 is not included in the rental payment of $53,300.) The asset will revert to the lessor at the end of the lease term. The straight-line depreciation method is used for all equipment. The following amortization schedule has been prepared correctly for use by both the lessor and the lessee in accounting for this lease. The lease is to be accounted for properly as a capital lease by the lessee and as a direct-financing lease by the lessor. Annual Lease Interest (10%) on unpaid Reduction of Lease Balance of Lease Payment/Receipt Liability/Receivable Liability/Receivable Liability/Receivable Date 10/01/17 $255,349 $53,300 $53,300 33,095 10/01/17 202,049 168,954 10/01/18 53,300 $20,205 10/01/19 53,300 16,895 36,405 132,549 92,504 10/01/20 53,300 13,255 40,045 53,300 10/01/21 9,250 48,454 44,050 48,454 53,300 4,846 10/01/22 $64,451 $255,349 $319,800 Your answer is correct. Assuming the lessor's accounting period ends on September 30, answer the following questions with respect to this lease agreement. (Round answers to 0 decimal places e.g. 58,971.) (1) What items and amounts will appear on the lessor's income statement for the year ending September 30, 2018? 20205 T Interest Revenue (2) What items and amounts will appear on the lessor's balance sheet at September 30, 2018? Balance Sheet (Partial) September 30, 2018 Current Assets 33095 Lease Receivable 20205 Interest Receivable Noncurrent Assets 168954 Lease Receivable (3) What items and amounts will appear on the lessor's income statement for the year ending September 30, 2019? 16895 T Interest Revenue (4) What items and amounts will appear on the lessor's balance sheet at September 30, 2019? Balance Sheet (Partial) September 30, 2019 Current Assets 36405 Lease Receivable 16895 Interest Receivable Noncurrent Assets 132549 Lease Receivable (1) What items and amounts will appear on the lessor's income statement for the year ending December 31, 2017? 5051 Interest Revenue (2) What items and amounts will appear on the lessor's balance sheet at December 31, 2017? Balance Sheet (Partial) December 31, 2017 Current Assets 8274 Lease Receivable 5051 Interest Receivable Noncurrent Assets 193775 Lease Receivable (3) What items and amounts will appear on the lessor's income statement for the year ending December 31, 2018? 19378 T Interest Revenue (3) What items and amounts will appear on the lessor's income statement for the year ending December 31, 2018? 19378 T Interest Revenue (4) What items and amounts will appear on the lessor's balance sheet at December 31, 2018? Balance Sheet (Partial) December 31, 2018 Current Assets Lease Receivable 33922 19378 Interest Receivable Noncurrent Assets Lease Receivable 159943
