Exercise 21A-5 a-c
Sage Hill Leasing Company signs an agreement on January 1, 2017,to lease equipment to Cole Company. The following informationrelates to this agreement.
| 1. | | The term of the non-cancelable lease is 6 years with no renewaloption. The equipment has an estimated economic life of 6years. |
| 2. | | The cost of the asset to the lessor is $401,000. The fair valueof the asset at January 1, 2017, is $401,000. |
| 3. | | The asset will revert to the lessor at the end of the leaseterm, at which time the asset is expected to have a residual valueof $22,050, none of which is guaranteed. |
| 4. | | The agreement requires equal annual rental payments, beginningon January 1, 2017. |
| 5. | | Collectibility of the lease payments by Sage Hill isprobable. |
a. Assuming the lessor desires a 8% rate of return on itsinvestment, calculate the amount of the annual rental paymentrequired.
b. Prepare an amortization schedule that is suitable for thelessor for the lease term.
c. Prepare all of the journal entries for the lessor for 2017and 2018 to record the lease agreement, the receipt of leasepayments, and the recognition of revenue. Assume the lessor’sannual accounting period ends on December 31, and it does not usereversing entries.
