Manufacturers Southern leased high-tech electronic equipment
from International Machines on January 1, 2021. International
Machines manufactured the equipment at a cost of $90,000.
Manufacturers Southern's fiscal year ends December 31. (FV of $1,
PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
(Use appropriate factor(s) from the tables
|Lease term||2 years (8 quarterly periods)|
|Quarterly rental payments||$15,500 at the beginning of each period|
|Economic life of asset||2 years|
|Fair value of asset||$117,772|
|Implicit interest rate||6%|
1. Show how International Machines determined the $15,500 quarterly lease payments.
2. Prepare appropriate entries for International Machines to record the lease at its beginning, January 1, 2021, and the second lease payment on April 1, 2021.
Record the lease. 1/1/2021
Record cash received. 1/1/2021
Record cash received. 4/1/2021
Period = 2*4 = 8 Quarterly
Rate = 6%/4 = 1.5% Quarterly
Present Value Annuity Factor (PVAF) As per Table = 7.59821
Present Value of Lease Payments = Lease Payment * PVAF
= $15500 * 7.59821
= $117772 (Round off in whole $)
2) Journal Entries :-
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