XYZ Company as the lessee records a capital lease of equipment on January 1, 2015. The five annual lease payments of $58,000 are made at the beginning of each year. The present value of the lease payments at 8% is $250,000. XYZ uses the straight line method for depreciation (no residual value).There is no transfer of ownership and there is no bargain purchase option. The equipment will have a life of 10 years.

Instructions

(a) Prepare a partial amortization table for 2015 (provided for you) and 2016. Compute the necessary blanks (not all will be used) in the table below that allow you to arrive at the lease obligation balance at 1/1/2016.

(b) Prepare all of XYZs journal entries for 2015 and the entry for the lease payment for 2016.

Solution to provide below:

(a) Annual Reduction

Date Payments 8% Interest Of Liability Lease Liability

1/1/15 $58,000 _________ __________ __________

12/31/15 _________ __________ __________

1/1/16 58,000 _________ __________ __________