Exercise 15-5
1. Calculation of the present value of lease payments (“selling price”)
2. Receivable at December 31, 2018
Receivable
Initial balance, June 30, 2018…………. $3,000,000
The receivable replaces the $2,500,000 machine on the balance sheet.
3. Income effect for year ended December 31, 2018
June 30, 2018 interest revenue…………………………… $ 0*
……………………………………………………….Sales revenue*
Cost of goods sold*……………………………………….
Selling profit……………………………………………… $
. .Total income from lease……………………….
Exercise 15-5 (concluded)
Calculations:
June 30, 2018*
……………..Sales revenue (present value calculated above)
………………………………………….Equipment (lessor’s cost)
……………………………………………………..Lease receivable
December 31, 2018**
…………………………………….Lease receivable (difference)
……………………………………………………………………….441,052Interest revenue
Exercise 15-6
Present Value of Lease Payments:
lease present
payments value
Lease Amortization Schedule
Lease Effective Decrease Outstanding
Payments Interest in Balance Balance
2% x Outstanding Balance
112,080
1 15,000 15,000 97,080
* adjusted for rounding of other numbers in the schedule
Exercise 15-6 (concluded)
January 1, 2018
April 1, 2018
Interest expense (2% x [$112,080 – 15,000])………….. 1,942
July 1, 2018
Interest expense (2% x $84,022: from schedule)…….. 1,680
October 1, 2018
Interest expense (2% x $70,702: from schedule)…….. 1,414
December 31, 2018
Interest expense (2% x $57,116: from schedule)……… 1,142
January 1, 2019
Exercise 15-7
Lease Amortization Schedule
Lease Effective Decrease Outstanding
Payments Interest in Balance Balance
2% x Outstanding Balance
112,080
1 15,000 15,000 97,080
2 15,000 .02 (97,080) = 1,942 13,058 84,022
* adjusted for rounding of other numbers in the schedule
January 1, 2018
…………………………………Equipment (lessor’s cost)
………………………………………….Lease receivable
No depreciation
Exercise 15-7 (concluded)
April 1, 2018
…………………………..Lease receivable (difference)
No depreciation
July 1, 2018
……………………………Lease receivable (difference)
No depreciation
October 1, 2018
……………………………Lease receivable (difference)
No depreciation
December 31, 2018
No depreciation
January 1, 2019
……………………………Lease receivable (difference)
…………….Interest receivable (from adjusting entry)
Exercise 15-8
Requirement 1
Lessor’s Calculation of Lease Payments
Lease payments at the beginning
Requirement 2
January 1, 2018
……………..Sales revenue (fair value / present value)
……………………………………………………….112,080Equipment (lessor’s cost)
………………………………………….Lease receivable
April 1, 2018
……………………………Lease receivable (difference)
Exercise 15-9
Situation 1
lease right-of-use asset/
payments lease payable
Situation 2
fair lease
value payments
lease right-of-use asset/
payments lease payable
** present value of an annuity due of $1: n=20, i=9%
Situation 3
fair lease
value payments
lease right-of-use asset/
payments lease payable
Exercise 15-10
Situation 1
fair lease
value payments
** present value of an ordinary annuity of $1: n=10, i=11%
lease right-of-use asset/
payments lease payable
* rounded
** present value of an ordinary annuity of $1: n=10, i=11%
Situation 2
fair lease
value payments
lease right-of-use asset/
payments lease payable
** present value of an ordinary annuity of $1: n=20, i=9%
‡ rounded for convenience
Situation 3
fair lease
value payments
** present value of an ordinary annuity of $1: n=4, i=12%
lease right-of-use asset/
payments lease payable
‡ rounded for convenience