58 553958 chapter 15 68 dec 31 unearned lease income

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Unformatted text preview: 00 2,100 Accounting by the Lessor – Direct Financing After negotiating the deal with Gator Toyota, DD goes to the Credit Union and signs an agreement on January 1, 2050, to lease the vehicle. The following information relates to this agreement. 1. 2. 3. 4. The term of the noncancelable lease is 5 years with no renewal option. The cost of the asset to the lessor is $21,000. The fair value of the asset at January 1, 2050, is $21,000. The agreement requires annual rental payments, beg. December 31, 2050. Collectibility of the lease payments is reasonably predictable. There are no important uncertainties surrounding the amount of costs yet to be incurred by the lessor. The Credit Union requires a 10% return on its investment 5. Chapter 15-69 Accounting by the Lessor – Direct Financing (Computation of Rental) Assuming the Credit Union desires a 10% rate of return on its investment, calculate the amount of the annual rental payment required. Fair market value of leased equipment Present value of residual value Amount to be recovered through lease payment PV factor of ordinary annunity (i=10%, n=5) Annual payment required $ 21,000 21,000 3.7909 5,539.58 - Chapter 15-70 Direct Financing Lease Gross Receipts Net receipts Unearned Lease Income 5,539.48 * 5 = $27,445 21,000 6,445 PV (of Gross receipts) = Run table starting with Net Receipts Chapter 15-71 Accounting by the Lessor – Direct Financing Prepare an amortization schedule that would be suitable for the lessor. Lease Payment 5,539.58 5,539.58 5,539.58 5,539.58 5,539.58 10% Interest Revenue 2,100 1,756 1,378 961 504 Recovery of Receivable 3,439.58 3,783.54 4,161.89 4,578.08 5,036.91 Lease Receivable $ 21,000 17560.42 13776.88 9614.99 5036.91 0.00 Date 1/1/50 12/31/50 12/31/51 12/31/52 12/31/53 12/31/54 Chapter 15-72 Direct Financing Because the cost of the asset is equal to its fair value, the lease is classified as a Direct Financing. GENERAL JOURNAL Date Description Debit Credit Jan 1 Lease Receivable Equipment 21,000 21,000 Dec 31 Cash Interest Revenue Lease Receivable Chapter 15-73 5,539.58 2,100 3,439.58 Accounting by the Lessor – Asset Reverts to Lessor Morgan Leasing Company signs an agreement on January 1, 2007, to lease equipment to Cole Company. The following information relates to this agreement. 1. 2. 3. The term of the noncancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years. The cost of the asset to the lessor is $245,000. The fair value of the asset at January 1, 2007, is $245,000. The asset will revert to the lessor at the end of the lease term at which time the asset is expected to have a residual value of $43,622, none of which is guaranteed. The agreement requires annual rental payments, beg. Jan. 1, 2007. Collectibility of the lease payments is reasonably predictable. There are no important uncertainties surrounding the amount of costs yet to be incurred by the lessor. 4. 5. Chapter 15-74 What type of Lease is this? • It is a Capital Lease because of lea...
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