Question

Manufacturers Southern leased high-tech electronic equipment from Edison Leasing on January 1, 2018. Edison purchased the equipment from International Machines at a cost of $112,446. (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 provided.)

Related Information:
Lease term	2 years (8 quarterly periods)
Quarterly rental payments	$15,300 at the beginning of each period
Economic life of asset	2 years
Fair value of asset	$112,446
Implicit interest rate	10%
(Also lessee’s incremental borrowing rate)

Required:
Prepare a lease amortization schedule and appropriate entries for Manufacturers Southern from the beginning of the lease through January 1, 2019. Depreciation is recorded at the end of each fiscal year (December 31) on a straight-line basis.

• Amort Schedule

Prepare a lease amortization schedule for the term of the lease for Manufacturers Southern from the beginning of the lease through January 1, 2019. Depreciation is recorded at the end of each fiscal year (December 31) on a straight-line basis. (Enter your answers in whole dollars and not in millions. Round your intermediate and final answers to nearest whole dollar. Enter all amounts as positive values.)

Payment Date	Lease Payments	Effective Interest	Decrease in Balance	Lease Balance
01/01/2018
04/01/2018
07/01/2018
10/01/2018
01/01/2019
04/01/2019
07/01/2019
10/01/2019
Total	$0	$0	$0

• General Journal

Record the appropriate entries for Manufacturers Southern from the beginning of the lease through January 1, 2019. Depreciation is recorded at the end of each fiscal year (December 31) on a straight-line basis. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars and not in millions. Round your intermediate and final answers to nearest whole dollar.)

Journal entry worksheet

• Record the beginning of the lease for Manufacturers Southern.

Note: Enter debits before credits.

Date	General Journal	Debit	Credit
January 01, 2018

• Record lease payment.

Note: Enter debits before credits.

Date	General Journal	Debit	Credit
January 01, 2018

• Record lease payment.

Note: Enter debits before credits.

Date	General Journal	Debit	Credit
April 01, 2018

• Record lease payment.

Note: Enter debits before credits.

Date	General Journal	Debit	Credit
July 01, 2018

• Record lease payment.

Note: Enter debits before credits.

Date	General Journal	Debit	Credit
October 01, 2018

• Record accrued interest.

Note: Enter debits before credits.

Date	General Journal	Debit	Credit
December 31, 2018

Answer 1

Amortization Table:

Payment Date	Lease Payments	Effective interest	Decrease in Balance	Lease Balance
01/01/2018				$          112,446
01/01/2018	$                15,300		$                         15,300	$            97,146
04/01/2018	$                15,300	$                2,429	$                         12,871	$            84,275
07/01/2018	$                15,300	$                2,107	$                         13,193	$            71,082
10/01/2018	$                15,300	$                1,777	$                         13,523	$            57,559
01/01/2019	$                15,300	$                1,439	$                         13,861	$            43,698
04/01/2019	$                15,300	$                1,092	$                         14,208	$            29,490
07/01/2019	$                15,300	$                    737	$                         14,563	$            14,927
10/01/2019	$                15,300	$                    373	$                         14,927	$                       0

Interest expense = Preceding Lease Balance x 2.5% [Note: Per year interest is 10%. So, per quarter rate is 2.5%]

Decrease in balance = Lease payment - Effective interest

Lease Balance = Preceding lease balance - Decrease in balance

Journal Entries:

Date	Account title and explanation	Debit	Credit
01/01/2019	Right of use asset	$ 112,446
	Lease liability		$ 112,446
	[To record lease liability]
01/01/2019	Lease liability	$    15,300
	Cash		$    15,300
	[To record first lease payment]
04/01/2018	Lease liability	$    12,871
	Interest expene	$      2,429
	Cash		$    15,300
	[To record lease liability]
07/01/2018	Lease liability	$    13,193
	Interest expense	$      2,107
	Cash		$    15,300
	[To record lease liability]
10/01/2018	Lease liability	$    13,523
	Interest expense	$      1,777
	Cash		$    15,300
	[To record lease liability]
12/31/2018	Interest expense	$      1,439
	Lease liability		$      1,439
	[To record accrued interest]
12/31/2018	Amortization expense [$112,446/2 years]	$    56,223
	Right of use		$    56,223
	[To record amortization expense]