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Unformatted text preview: the asset, the cost of goods sold and related inventory reduction, and the lease receivable. In Direct Financing, the lessor does not record a sale or cost of goods sold • • Chapter 15-61 Accounting by the Lessor – Sales Type
Gator Toyota signs an agreement on January 1, 2050, to lease a vehicle to MM. 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 $15,000. 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. Gator Toyota requires a 10% return on its investment 5. Chapter 15-62 Accounting by the Lessor
Computation of rental
A lessor determines the amount of the rental, based on the rate of return needed to justify leasing the asset. If a residual value is involved (whether guaranteed or not), the company would not have to recover as much from the lease payments Chapter 15-63 Accounting by the Lessor – Sales Type
(Computation of Rental) Assuming Gator Toyota 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 x
$ 21,000 21,000 3.7909 5,539.58 - Chapter 15-64 Sales Type Lease Gross Receipts Net receipts Unearned Lease Income Sales Cost of Goods Sold 5,539.48 * 5 = $27,697 21,000 6,697 PV (of Gross receipts) = PV of Minimum Lease Payments = $21,000 Cost of Asset – PV (UGRV) = $15,000 Gator Toyota makes $6,000 Gross Profit and $6,697 in financing income Run table starting with Net Receipts
Chapter 15-65 Accounting by the Lessor – Sales Type
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 6,699 Recovery of Receivable 3,439.58 3,783.54 4,161.89 4,578.08 5,036.91 21,000 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 Total
Chapter 15-66 Sales-Type Leases: Lessor
Because the cost of the asset is not equal to its fair value, the lease is classified as a Sales-Type Lease.
GENERAL JOURNAL Date Description Debit Credit Jan 1 Lease Receivable Cost of Goods sold Sales Revenue Inventory of equipment Dec 31 Cash Interest revenue Lease Receivable 21,000 15,000 21,000 15,000 5,539.58 2,100 3,439.58 Chapter 15-67 It is also acceptable to record the Lease Receivable at the Gross Amount of $27,697 as long as there is a corresponding credit for Unearned lease income of $6,697
GENERAL JOURNAL Date Description Debit Credit Jan 1 Lease Receivable Cost of Goods sold Sales Revenue Inventory of equipment ULY
GENERAL JOURNAL Date Description 27,697 15,000 21,000 15,000 6,697 Debit Credit Dec 31 Cash Lease Receivable 5,539.58 5,539.58 Chapter 15-68 Dec 31 Unearned lease Income Lease Income 2,100....
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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.
- Spring '09