Problem 21A-1 a-c The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and...

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Accounting

Problem 21A-1 a-c
The following facts pertain to a non-cancelable lease agreementbetween Faldo Leasing Company and Windsor Company, a lessee.
Commencement date January 1, 2017
Annual lease payment due at the beginning of
each year, beginning with January 1, 2017 $119,345
Residual value of equipment at end of lease term,
guaranteed by the lessee $50,000
Expected residual value of equipment at end of lease term $45,000
Lease term 6 years
Economic life of leased equipment 6 years
Fair value of asset at January 1, 2017 $642,000
Lessor’s implicit rate 7 %
Lessee’s incremental borrowing rate 7 %
.he asset will revert to the lessor at the end of the leaseterm. The lessee uses the straight-line amortization for all leasedequipment.
WINDSOR COMPANY (Lessee)
Lease AmortizationSchedule
Date
Annual Lease
Interest on
Reduction of Lease
Lease Liability
Payment Plus GRV Liability Liability
1/1/2017
1/1/2017
1/1/2018
1/1/2019
1/1/2020
1/1/2021
1/1/2022
12/31/2022

Answer & Explanation Solved by verified expert

3.9 Ratings (694 Votes)

Windsor Company
Lessee
Lease Amortization schedule
Date	Annual lease payment plus GRV	Interest on Liability	Reduction on lease liability	Lease Liability
	(a)	(b) = previous year lease liability X 7%	(c) = (a) - (b)	Previous year balance - (c)
1/1/2017				$ 6,42,000
1/1/2017	$ 1,19,345	$ -	$ 1,19,345.00	$ 5,22,655.00
1/1/2018	$ 1,19,345	$ 36,585.85	$ 82,759.15	$ 4,39,895.85
1/1/2019	$ 1,19,345	$ 30,792.71	$ 88,552.29	$ 3,51,343.56
1/1/2020	$ 1,19,345	$ 24,594.05	$ 94,750.95	$ 2,56,592.61
1/1/2021	$ 1,19,345	$ 17,961.48	$ 1,01,383.52	$ 1,55,209.09
1/1/2022	$ 1,19,345	$ 10,864.64	$ 1,08,480.36	$ 46,728.73
12/31/2022	$ 50,000	$ 3,271.01	$ 46,728.73	$ -
Total	$ 7,66,070	$ 1,24,070	$ 6,42,000

Workings:
12/31/2022
Residual value given = $50,000

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Transcribed Image Text

Problem 21A-1 a-cThe following facts pertain to a non-cancelable lease agreementbetween Faldo Leasing Company and Windsor Company, a lessee.Commencement dateJanuary 1, 2017Annual lease payment due at the beginning of each year, beginning with January 1, 2017$119,345Residual value of equipment at end of lease term, guaranteed by the lessee$50,000Expected residual value of equipment at end of lease term$45,000Lease term6yearsEconomic life of leased equipment6yearsFair value of asset at January 1, 2017$642,000Lessor’s implicit rate7%Lessee’s incremental borrowing rate7%.he asset will revert to the lessor at the end of the leaseterm. The lessee uses the straight-line amortization for all leasedequipment.WINDSOR COMPANY (Lessee)Lease AmortizationScheduleDateAnnual LeaseInterest onReduction of LeaseLease LiabilityPayment Plus GRVLiabilityLiability1/1/20171/1/20171/1/20181/1/20191/1/20201/1/20211/1/202212/31/2022

Commencement date	January 1, 2017
Annual lease payment due at the beginning of each year, beginning with January 1, 2017	$119,345
Residual value of equipment at end of lease term, guaranteed by the lessee	$50,000
Expected residual value of equipment at end of lease term	$45,000
Lease term	6	years
Economic life of leased equipment	6	years
Fair value of asset at January 1, 2017	$642,000
Lessor’s implicit rate	7	%
Lessee’s incremental borrowing rate	7	%

WINDSOR COMPANY (Lessee)
Lease AmortizationSchedule
Date	Annual Lease	Interest on	Reduction of Lease	Lease Liability
	Payment Plus GRV	Liability	Liability