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Exercise 21-11 (Part Level Submission)
Laura Leasing Company signs an agreement on January 1, 2017, to lease equipment to Teal Company. The following information relates to this agreement.
| 1. | The term of the noncancelable lease is 5 years with no renewal option. The equipment has an estimated economic life of 5 years. | |
| 2. | The fair value of the asset at January 1, 2017, is $83,100. | |
| 3. | The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $7,600, none of which is guaranteed. | |
| 4. | Teal Company assumes direct responsibility for all executory costs, which include the following annual amounts: (1) $870 to Rocky Mountain Insurance Company for insurance and (2) $1,590 to Laclede County for property taxes. | |
| 5. | The agreement requires equal annual rental payments of $18,796.99 to the lessor, beginning on January 1, 2017. | |
| 6. | The lessee’s incremental borrowing rate is 12%. The lessor’s implicit rate is 10% and is known to the lessee. | |
| 7. | Teal Company uses the straight-line depreciation method for all equipment. | |
| 8. | Teal uses reversing entries when appropriate. |
a. Prepare an amortization schedule that would be suitable for the lessee for the lease term.
Teal Company (Lessee)
Lease Amortization Schedule
Date Annual Lease Payment Interest on Liability Reduction of Lease Liability Lease Liability
1/1/17 $ _________________ $ _____________ $______________________ $______________
1/1/17 $ _________________ $ _____________ $______________________ $______________
1/1/18 $ _________________ $ _____________ $______________________ $______________
1/1/19 $ _________________ $ _____________ $______________________ $______________
1/1/20 $ _________________ $ _____________ $______________________ $______________
$ __________________ $ _____________ $______________________
Expert Answer
