4 5 chapter 15 74 what type of lease is this it is a

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Unformatted text preview: se term relative to useful life and revenue recognition criteria are met. In the Sales Type Lease the cost of the asset is not equal to its fair value In the Direct Financing the cost of the asset is equal to its fair value Here Cost is $245,000 and FMV is $245,000 so it is a direct financing. • • • Chapter 15-75 Accounting by the Lessor (Computation of Rental) Assuming the lessor desires a 10% rate of return on its investment, calculate the amount of the annual rental payment required. Residual value PV of single sum (i=10%, n=6) PV of residual value Fair market value of leased equipment Present value of residual value Amount to be recovered through lease payment PV factor of annunity due (i=10%, n=6) Annual payment required Chapter 15-76 $ x 43,622 0.56447 24,623 $ $ 245,000 - (24,623) 220,377 4.79079 $ 46,000 ÷ Direct Financing Lease Gross Receipts Net receipts Unearned Lease Income (46,000 * 6 ) + 43,622 = $319,622 PV (of Gross receipts) 220,377 + 24,623 =245,000 319,622 -245,000 = $74,622 Run table starting with Net Receipts Chapter 15-77 Accounting by the Lessor Prepare an amortization schedule that would be suitable for the lessor. Lease Payment $ 46,000 46,000 46,000 46,000 46,000 46,000 43,622 19,900 17,290 14,419 11,261 7,787 3,965 10% Interest Revenue Recovery of Receivable $ 46,000 26,100 28,710 31,581 34,739 38,213 39,657 Lease Receivable $ 245,000 199,000 172,900 144,190 112,609 77,870 39,657 0 Date 1/1/07 1/1/07 1/1/08 1/1/09 1/1/10 1/1/11 1/1/12 12/31/12 Chapter 15-78 * * rounding Salvage Value Accounting by the Lessor Prepare all of the journal entries for the lessor for 2007 and 2008. Journal entry 1/1/07 1/1/07 12/31/07 Lease receivable Equipment Cash Lease receivable Interest receivable Interest revenue 245,000 245,000 46,000 46,000 19,900 19,900 Chapter 15-79 Accounting by the Lessor Prepare all of the journal entries for the lessor for 2007 and 2008. Journal entry 1/1/08 Cash Lease receivable Interest receivable Interest receivable Interest revenue 46,000 26,100 19,900 17,290 17,290 12/31/08 Chapter 15-80 Accounting by the Lessor --Residual Value • The residual value of a leased asset is an estimate of what its commercial value will be at the end of the lease term. We need to determine the proper accounting for residual value by the lessor. • Chapter 15-81 Residual Value If title transfer to lessee Lessee reduces asset by this amount for depreciation purposes over useful life Lessor sets annual payments to recover the residual value If Asset reverts to Lessor, residual value can be Unguaranteed by Lessee Guaranteed by Lessee Chapter 15-82 Guarantee by a third party Residual Values Lessor Accounting for Residual Value Lessor works on the assumption that it will realize the residual value at the end of the lease term whether guaranteed or unguaranteed. In determining the lease payment amount, the lessor will reduce the fair value of the asset by the present value of the residual value. The reduced fair value becomes the value used to calculate the lease payments. Chapter 15-83 Lessor Accounti...
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This note was uploaded on 04/08/2009 for the course ACG 3482C taught by Professor Tinaker during the Spring '09 term at University of Florida.

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