Question

Swifty Leasing Company leases a new machine that has a cost and fair value of $72,000 to Sharrer Corporation on a 3-year noncancelable contract. Sharrer Corporation agrees to assume all risks of normal ownership including such costs as insurance, taxes, and maintenance. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2017. Swifty Leasing Company expects to earn a 9% return on its investment. The annual rentals are payable on each December 31. (b) Prepare an amortization schedule that would be suitable for both the lessor and the lessee and that covers all the years involved. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.) Click here to view factor tables Rent Receipt/ Payment Interest Revenue/ Expense Reduction of Principal Receivable/ Liability 1/1/17 $ $ $ $ 12/31/17 12/31/18 12/31/19

Answer 1

Solution:-

(b) Prepare an amortization schedule that would be suitable for both the lessor and the lessee and that covers all the years involved :-

	Rent receipt / Payment	Interest revenue / Expense	Reduction of preincipal	Receivable / Liability
1/1/17	$0	$0	$0	$72,000
12/31/17	$28,456.43	= 72,000 * 9% = $6,480	= 28,456.43 - 6,480 = $21,976.43	= 72,000 - 21,976.43 = $50,023.57
12/31/18	$28,456.43	= 50,023.57 * 9% = 4,502.12	= 28,456.43 - 4,502.12 = $23,954.30	= 50,023.57 - 23,954.30 = $26,069.26
12/31/19	$28,456.43	= 26,069.26 * 9% = $2,346.23	= 28,456.43 - 2,346.23 = $26,110.2	= 26,069.26 - 26,110.2 = $40.94

Working notes:-

Here, A = rental received for annual

Rental received = $28,456.43