One Republic Company leased equipment to Maps Company on January 1, 2014. The lease term is for a four-year period. The annual lease payments must be made on January 1 of each year, with the first payment due on January 1, 2014. Additional information relating to the lease is as follows: • The cost of equipment to One Republic was $70,000, and the normal selling price for this type of equipment is $110,000.
•One Republic requires a 10% rate of return on its investments, so this is the interest rate used to calculate the annual lease payments.
•The lease contains a bargain purchase option. On December 31, 2017, the lessee may acquire the equipment for $4,000.
•The equipment has an expected economic life of six years. The residual value of the equipment at that time is estimated to be $1,000.
•The collectibility of the lease payments is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor.
Required:
a.Compute the amount of the equal annual lease payments. (Round your answer to the nearest dollar.)
b.Classify the lease from One Republic Company's viewpoint (the lessor), stating the reason for the classification.
c.Prepare a lease amortization schedule for the four-year term for One Republic. (Round amounts to the nearest dollar.)
d.Prepare all entries for 2014 required by the One Republic Company.

Question

One Republic Company leased equipment to Maps Company on January 1, 2014. The lease term is for a four-year period. The annual lease payments must be made on January 1 of each year, with the first payment due on January 1, 2014. Additional information relating to the lease is as follows: •	The cost of equipment to One Republic was $70,000, and the normal selling price for this type of equipment is $110,000.
•One Republic requires a 10% rate of return on its investments, so this is the interest rate used to calculate the annual lease payments.
•The lease contains a bargain purchase option. On December 31, 2017, the lessee may acquire the equipment for $4,000.
•The equipment has an expected economic life of six years. The residual value of the equipment at that time is estimated to be $1,000.
•The collectibility of the lease payments is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor.
Required:
a.Compute the amount of the equal annual lease payments. (Round your answer to the nearest dollar.)
b.Classify the lease from One Republic Company's viewpoint (the lessor), stating the reason for the classification.
c.Prepare a lease amortization schedule for the four-year term for One Republic. (Round amounts to the nearest dollar.)
d.Prepare all entries for 2014 required by the One Republic Company.

Quizplus · Accepted Answer

The Answer of One Republic Company leased equipment to Maps Company on January 1, 2014. The lease term is for a four-year period. The annual lease payments must be made on January 1 of each year, with the first payment due on January 1, 2014. Additional information relating to the lease is as follows: •	The cost of equipment to One Republic was $70,000, and the normal selling price for this type of equipment is $110,000.
•One Republic requires a 10% rate of return on its investments, so this is the interest rate used to calculate the annual lease payments.
•The lease contains a bargain purchase option. On December 31, 2017, the lessee may acquire the equipment for $4,000.
•The equipment has an expected economic life of six years. The residual value of the equipment at that time is estimated to be $1,000.
•The collectibility of the lease payments is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor.
Required:
a.Compute the amount of the equal annual lease payments. (Round your answer to the nearest dollar.)
b.Classify the lease from One Republic Company's viewpoint (the lessor), stating the reason for the classification.
c.Prepare a lease amortization schedule for the four-year term for One Republic. (Round amounts to the nearest dollar.)
d.Prepare all entries for 2014 required by the One Republic Company.

One Republic Company Leased Equipment to Maps Company on January