A531-10UFS

A531-10UFS - Name: Umme Fatema Siddique Student Number: 805...

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Name: Umme Fatema Siddique Student Number: 805 936 291 Course Code/Number: ACCT 531 Assignment Number: 10 Requirement (a) In this case, the lease transaction would be treated and journalized as a capital lease by Lee Industries, which means the lessee have to capitalize the leased equipment. Because the title of the equipment transfers to the lessee, not the lessor and the lease term is the estimated life of the asset. Since the lease contract is for 10 years, and so is the estimated life of the equipment, this transaction would be considered as a purchase financed by instalment payments over this time frame. Calculation of Lease paymenst from the viewpoint of Lessee: Annual Rental Payments $620,956 Number of years 10 Lease Payment Receivable $6,209,560 PV of Lease Payments: Using the excel formul a, we can calculate PV of the lease payment. PV= $4,499,999 or $4,500,000 Calculation of Lease paymenst from the viewpoint of Lessor: Unearned Interest Income Lease payment receivable $6,209,560 Deduct: PV of lease payments $4,500,000 Unearned Interest Income $1,709,560 Lessor's Profit: Sales $4,500,000 Deduct: Cost of building engines $3,900,000 Profit $600,000 Requirement (b) The necessary journal entries to record in the books of Lee Industries are as fol ows: Date Journals Debit Credit 2011 Leased Engines $4,500,000 1-Jan Lease Obligation $4,500,000 1-Jan Lease Obligation $620,956 Cash $620,956 Requirement (c) The necessary journal entries to record in the books of Lor Inc. are as fol ows: Date Journals Debit Credit 2011 Lease Payments Receivable $6,209,560 1-Jan Cost of Goods Sold $3,900,000 Sales $4,500,000 Inventory $3,900,000 Unearned Interest Income $1,709,560 1-Jan Cash $620,956 Lease Payments Receivable $620,956 Requirement (d) The amortization schedule for the lease obligation for two years is given below: Lor Inc. Lease Amortization Schedule For the year ended 2012 Date (a) (b) (c ) (d) 1/1/2011 $4,500,000 1/1/2011 $620,956 $620,956 $3,879,044 1/1/2012 $620,956 $310,324 $310,632 $3,568,412 1/1/2013 $620,956 $285,473 $335,483 $3,232,928 (a) Annual base payment as required by lease, excluding executory costs (b) Preceding balance of (d) x 8%, except 1/1/2011 (c ) (a) minus (b) (d) Preceding balance minus ©
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A531-10UFS - Name: Umme Fatema Siddique Student Number: 805...

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