Lessor Company leases small computers on three-year leases at the end of which the residual value is not material in amount.Rents are collected at year-end.On January 1,2014,Lessor signed a 3-year lease with Lessee Company that called for annual rents of $12,063,which was a return to Lessor of 10% on the $30,000 cost (market value at date of lease).Assume the lease qualifies as a direct financing lease to the lessor and a finance lease to the lessee.There was no bargain purchase option or residual value.The lessee's incremental borrowing rate is 12%.
(a)Complete the following amortization schedule for the lease.
Round to the nearest dollar. * May have slight rounding error.
(b)Can both the lessor and lessee use the amortization schedule values in this instance?
Yes __________________ No ___________________
Explain why _________________________________________________.
(c)Give the entries for the lessor and lessee on the following dates (assume the accounting period ends December 31).Use the abbreviated account titles.

Question

Lessor Company leases small computers on three-year leases at the end of which the residual value is not material in amount.Rents are collected at year-end.On January 1,2014,Lessor signed a 3-year lease with Lessee Company that called for annual rents of $12,063,which was a return to Lessor of 10% on the $30,000 cost (market value at date of lease).Assume the lease qualifies as a direct financing lease to the lessor and a finance lease to the lessee.There was no bargain purchase option or residual value.The lessee's incremental borrowing rate is 12%.
(a)Complete the following amortization schedule for the lease.
Round to the nearest dollar.  * May have slight rounding error.
(b)Can both the lessor and lessee use the amortization schedule values in this instance?
Yes __________________ No ___________________
Explain why _________________________________________________.
(c)Give the entries for the lessor and lessee on the following dates (assume the accounting period ends December 31).Use the abbreviated account titles.

Quizplus · Accepted Answer

The Answer of Lessor Company leases small computers on three-year leases at the end of which the residual value is not material in amount.Rents are collected at year-end.On January 1,2014,Lessor signed a 3-year lease with Lessee Company that called for annual rents of $12,063,which was a return to Lessor of 10% on the $30,000 cost (market value at date of lease).Assume the lease qualifies as a direct financing lease to the lessor and a finance lease to the lessee.There was no bargain purchase option or residual value.The lessee's incremental borrowing rate is 12%.
(a)Complete the following amortization schedule for the lease.
Round to the nearest dollar.  * May have slight rounding error.
(b)Can both the lessor and lessee use the amortization schedule values in this instance?
Yes __________________ No ___________________
Explain why _________________________________________________.
(c)Give the entries for the lessor and lessee on the following dates (assume the accounting period ends December 31).Use the abbreviated account titles.

Lessor Company Leases Small Computers on Three-Year Leases at the End