Question

The following facts pertain to a noncancelable lease agreement between Mooney Leasing Company and Rode Company, a lessee.

Inception date:		May 1, 2017
Annual lease payment due at the beginning of
each year, beginning with May 1, 2014		$20,471.94
Bargain-purchase option price at end of lease term		$4000.00
Lease term		5	years
Economic life of leased equipment		10	years
Lessor’s cost		$65,000.00
Fair value of asset at May 1, 2017		$91,000.00
Lessor’s implicit rate		8	%
Lessee’s incremental borrowing rate		8	%

The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs.

a. Compute the amount of the lease receivable at the inception of the lease. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and Round answers to 2 decimal places, e.g. 16.25.)

b. Prepare a lease amortization schedule for Mooney Leasing Company for the 5-year lease term.

Answer 1

Computation of Annual Lease Payment- Mooney Leasing Company
Annual Lease Payment (a)	$20,471.94
PV Annuity @ 8% for 0-4 (b)	$4.31
Present Value of lease payment (c=Axb)	$88,277.67
Add: Present Value of Bargain Purchase Option (4000X0.680583) (d)	$2,722.33
Present Value of lease (c+d)	$91,000.00

Lease Amortization Schedule
Date	Lease Payment Plus GRV	Interest on Liability (8%)	Reduction of Lease Liability	Lease Liability
1-May-17				$91,000
1-May-17	$20,472	$0	$20,472	$70,528
1-May-18	$20,472	$5,642	$14,830	$55,698
1-May-19	$20,472	$4,456	$16,016	$39,682
1-May-20	$20,472	$3,175	$17,297	$22,385
1-May-21	$20,472	$1,791	$18,681	$3,704
1-May-22	$0	$296	-$296	$4,000