Reference no: EM131883608
Assignment
The following facts pertain to a non-cancelable lease agreement between Imperial Leasing and Morton Electronics, a lessee, for a computer system.
Inception date April 1, 2017
Lease term 6 years
Economic life of leased equipment 6 years
FV of asset at inception $200,255
Residual value at end of lease term 0
Lessor's implicit rate 10%
Lessee's incremental borrowing rate 10%
Annual lease payment due at the
beginning of each year, beginning with April 1, 2014 $41,800
The collectability 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 annual maintenance costs, which amount to $5,500 per year and are to be paid each April 1, beginning April 1, 2017. Note: the maintenance costs are not included in the rental payment of $41,800. The asset will revert to the lessor at the end of the lease term.
ADDITIONAL Information:
a. Lessee debits a nominal account when paying for all maintenance costs.
b. At balance sheet date lessee reclassifies all required debt with a journal entry so that the proper classifications are reflected in the financial statements.
c. Lessor credits a real account when cash is received from the lessee for maintenance costs. Assume that this is a 3rd party collection and that the cash is transferred to the third party on the same day it is received by the lessor.
d. At balance sheet date lessor reclassifies all appropriate accounts with a journal entry so that the proper classifications are reflected in the financial statements.
REQUIRED:
1. Provide an amortization schedule for the annual lease payments.
2. Assume the lessee's and the lessor's accounting period ends on March 31.
a. Provide the journal entries for 2017 and 2018for the lessee.
b. What items will appear on the lessee's classified balance sheet as of March 31, 2018?
c. What items will appear on the lessee's multistep income statement as of March 31, 2018?
d. Provide the journal entries for 2017 and 2018 for the lessor.
e. What items will appear on the lessor's classified balance sheet as of March 31, 2018?
f. What items will appear on the lessor's income statement as of March 31, 2018?
3. Assume the lessee's and the lessor's accounting period ends on December 31.
a. Provide the journal entries for 2017 for the lessee.
b. What items will appear on the lessee's classified balance as of December 31, 2017?
c. What items will appear on the lessee's multistep income statement as of December 31, 2017?
d. Provide the journal entries for 2017 for the lessor.
e. What items will appear on the lessor's classified balance sheet as of December 31, 2017?
f. What items will appear on the lessor's income statement as of December 31, 2017?