Exercise 15-6 (Algo) Finance lease; lessee [LO15-2]
Manufacturers Southern leased high-tech electronic equipment
from Edison Leasing on January 1, 2021. Edison purchased the
equipment from International Machines at a cost of $127,024. (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||$17,000 at the beginning of each period|
|Economic life of asset||2 years|
|Fair value of asset||$127,024|
|Implicit interest rate||8%|
|(Also lessee’s incremental borrowing rate)|
Prepare a lease amortization schedule and appropriate entries for Manufacturers Southern from the beginning of the lease through January 1, 2022. Amortization of the right-of-use asset is recorded at the end of each fiscal year (December 31) on a straight-line basis.
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