List all the entries made by spectacor in the final year

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Reference no: EM13293837

Esche Company manufactures ice rink resurfacers (known as zambonis). Esche manufactures one of its ice rink resurfacers with an estimated economic life of 12 years and leases it to Spectacor for a period of 10 years under a non-cancelable lease.

The normal selling price of the machine is $210,482 and its guaranteed residual value at the end of the lease term is $20,000. Spectacor will pay annual payments of $30,000 at the beginning of each year plus all maintenance, insurance, and taxes. Esche incurred costs of $135,000 in manufacturing the equipment. Esche believes that the collectibility of the lease payments is reasonably predictable and that no additional costs will be incurred during the lease period. The implicit rate used is 10%.

Required:

1. What kind of lease is this to the lessor and to the lessee?

2. At lease inception, what is the

  • Gross investment?
  • Unearned interest revenue?
  • Sales price?
  • Cost of sales?


3. Prepare a 10 year lease amortization schedule using excel. Turn in the schedule and an excel sheet that shows the formulas you used in excel for the Lr and Le. You can get assistance from excel help on how to do a printout of the cell formulas.
4. Prepare all of the lessor's entries for the inception of the lease and the first, second and tenth years. Spectacor returns the machine at the end of the lease. Unfortunately, the value of the machine at the end of the lease has a value of only $18,000 (lower than the guaranteed value of $20,000). What would Spectacor be required to do when it returns the machine? What entries would Esche make when the machine is returned?

5. List all the entries made by Spectacor in the final year of the lease.

 

Reference no: EM13293837

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