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Q13P_b.

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Intermediate Accounting (Kieso)
Found in: Page 1249

Short Answer

Lessor Computations and Entries, Sales-Type Lease with Guaranteed Residual Value) Amirante Inc. manufactures an X-ray machine with an estimated life of 12 years and leases it to Chambers Medical Center for a period of 10 years. The normal selling price of the machine is $411,324, and its guaranteed residual value at the end of the noncancelable lease term is estimated to be $15,000. The hospital will pay rents of $60,000 at the beginning of each year and all maintenance, insurance, and taxes. Amirante Inc. incurred costs of $250,000 in manufacturing the machine and $14,000 in negotiating and closing the lease. Amirante Inc. has determined that the collectibility of the lease payments is reasonably predictable, that there will be no additional costs incurred, and that the implicit interest rate is 10%.

Instructions

(b) Prepare a 10-year lease amortization schedule.

The total recovery of the lease receivable is $411,324.

See the step by step solution

Step by Step Solution

Meaning of lease liability

Lease liability means the amount of the lease liability in respect of any lease that would be required to be included in the statement of financial position prepared in accordance with the IFRS at the time of any determination and shall have a maturity period before the first date of such lease.

Preparing 10-year lease amortization schedule

AMIRANTE INC. (Lessor)

Lease Amortization Schedule

(Annuity due basis, guaranteed residual value)

Beginning of Year

Annual Lease Payment Plus Residual Value

Interest (10%) on Lease Receivable

Recovery of Lease Receivable

Lease Receivable

(a)

(b)

(d)

(e)

Initial PV

-

-

-

$411,324

1

$60,000

-

$60,000

351,324

2

60,000

$35,132

24,868

326,456

3

60,000

32,646

27,354

299,102

4

60,000

29,910

30,090

269,012

5

60,000

26,901

33,099

235,913

6

60,000

23,591

36,409

199,504

7

60,000

19,950

40,050

159,454

8

60,000

15,945

44,055

115,399

9

60,000

11,540

48,460

66,939

10

60,000

6,694

53,306

13,633

End of 10

15,000

1,367

13,633

0

$615,000

$203,676

$411,324

Note:

  1. The rounding error is $4.00 in interest (10%) on the lease receivable at end of 10
  2. Annual lease payment is required by the lease contract.
  3. Preceding balance of (d)10%, except at the beginning of the first year of the lease term
  4. (a) Minus (b).
  5. Preceding balance minus (c).

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