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Unformatted text preview: ng for Guaranteed Residual Value Illustration (LESSOR with GRV) On Jan. 1, 2007, Lessee entered into a four-year, noncancellable contact to lease a computer from Lessor. Annual rentals of \$16,228 are to be paid each Jan. 1. The cost of the computer to Lessor Company was \$60,000 and has an estimated useful life of four years and a \$5,000 residual value. Lessee has guaranteed the lessor a residual value of \$5,000. Lessee has an incremental borrowing rate of 12% but has knowledge that Lessor computer Company used a rate of 10% in setting annual rentals. Collection of the rentals is reasonably predictable and there are no important uncertainties regarding future unreimbursable costs to be incurred by the lessor. Chapter 15-84 Lessor Accounting for Guaranteed Residual Value Illustration (LESSOR) Calculation of the annual rental payment. Residual value PV of single sum (i=10%, n=4) PV of residual value Cost of equipment to be recovered Present value of residual value Amount to be recovered through lease payment PV factor of annunity due (i=10%, n=4) Annual payment required Chapter 15-85 \$ x 5,000 0.68301 3,415 60,000 (3,415) 56,585 3.48685 \$ \$ - ÷ \$ 16,228 essor Accounting for Guaranteed Residual Value Gross Receipts Net receipts Unearned Lease Income (16228 * 4) + 5000 56585 + 3415 = = \$69912 \$60,000 9.912 Run table starting with Net Receipts Chapter 15-86 Lessor Accounting for Guaranteed Residual Value Illustration (LESSOR) Prepare an amortization schedule that would be suitable for the Exceptional. Lease Payment \$ 16,228 16,228 16,228 16,228 5,000 4,377 3,192 1,889 454 * 10% Interest Revenue Recovery of Receivable \$ 16,228 11,851 13,036 14,339 4,546 Lease Receivable \$ 60,000 43,772 31,921 18,885 4,546 0 Date 1/1/07 1/1/07 1/1/08 1/1/09 1/1/10 12/31/10 * rounding Chapter 15-87 Guaranteed Residual Lessor Accounting for Guaranteed Residual Value Illustration (LESSOR) Prepare all of the journal entries for the Exceptional 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 60,000 60,000 16,228 16,228 4,377 4,377 Chapter 15-88 Lessor Accounting for Guaranteed Residual Value Illustration (LESSOR) Prepare all of the journal entries for the Exceptional for 2007 and 2008. Journal entry 1/1/08 Cash Lease receivable Interest receivable Interest receivable Interest revenue 16,228 11,851 4,377 3,192 3,192 12/31/07 Chapter 15-89 Lessor Accounting for Unguaranteed Residual Values On January 1, 2050, BB, Inc. leased a color copier from Lessor Corporation at a “price” of \$479,079. The lease agreement specifies annual payments beginning January 1, 2050, the inception of the lease, and at each December 31 through 2054. The estimated useful life of the copier is seven years. At the end of the six-year lease term the copier is expected to be worth \$60,000. BB has not guaranteed the residual value Lessor manufactured the copier at a cost of \$300,000. Lessor’s interest rate for financi...
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