Zoppas
Leasing Corporation, which has a fiscal year end of October 31 and uses IFRS,
signs an agreement on January 1, 2011, to lease equipment to Irvine Limited.
The following information relates to the agreement.
1.
The term of the non-cancellable lease is six years, with no renewal option. The
equipment has an estimated economic life of eight years.
2.
The asset’s cost to Zoppas, the lessor, is $305,000. The asset’s fair value at
January 1, 2011, is $305,000.
3.
The asset will revert to the lessor at the end of the lease term, at which time
the asset is expected to have a residual value of $45,626, which is not
guaranteed.
4.
Irvine Limited, the lessee, assumes direct responsibility for all executory
costs.
5.
The agreement requires equal annual rental payments, beginning on January 1,
2011.
6.
Collectibility of the lease payments is reasonably predictable. There are no
important uncertainties about costs that have not yet been incurred by the
lessor.
Instructions
Answer
the following, rounding all numbers in parts (b) and (c) to the nearest cent.
(a)
Assuming that Zoppas Leasing desires a 10% rate of return on its investment,
use time value of money tables, a financial calculator, or computer spreadsheet
functions to calculate the amount of the annual rental payment that is required.
Round to the nearest dollar.
(b)
Prepare an amortization schedule using a computer spreadsheet that would be
suitable for the lessor for the lease term.
(c)
Prepare all of the journal entries for the lessor for 2011 and 2012 to record
the lease agreement, the receipt of lease payments, and the recognition of
income. Assume that Zoppas prepares adjusting journal entries only at the end
of the fiscal year.
(a)
Fair market value of leased asset to lessor $305,000.00
Less: Present
value of unguaranteed
residual value $45,626 X .56447
(present value of 1 at 10% for 6 periods) 25,754.51
Amount to be recovered through lease payments $279,245.49
Six periodic lease payments $279,245.49 ÷ 4.79079* $58,288.00 **
*Present value of annuity due of 1 for 6 periods at
10%.
**Rounded to the nearest dollar.
|
Excel formula =PMT(rate,nper,pv,fv,type)
|
|
Using a financial calculator:
|
||
|
PV
|
$
(305,000)
|
|
|
I
|
10%
|
|
|
N
|
6
|
|
|
PMT
|
$
?
|
Yields $58,288
|
|
FV
|
$
45,626
|
|
|
Type
|
1
|
|
(b) Zoppas Leasing Corporation (Lessor)
Lease
Amortization Schedule
|
Date
|
|
Annual
Lease
Payment
Plus URV
|
|
Interest
(10%) on Net
Investment
|
|
Net
Investment
Recovery
|
|
Balance
of Net
Investment
|
|
|
|
|
|
|
|
|
|
|
|
1/1/11
1/1/11
1/1/12
1/1/13
1/1/14
1/1/15
1/1/16
12/31/16
|
|
$ 58,288
58,288
58,288
58,288
58,288
58,288
45,626
$395,354
|
|
$24,671
21,310
17,612
13,544
9,070
4,147*
$90,354
|
|
$ 58,288
33,617
36,978
40,676
44,744
49,218
41,479
$305,000
|
|
$305,000
246,712
213,095
176,117
135,441
90,697
41,479
0
|
* rounding of $1
(c)
1/1/11 Lease
Payments Receivable.... 395,354
Equipment
Purchased for Lease 305,000
Unearned
Interest Income—
Leases................. 90,354
1/1/11 Cash .................. 58,288
Lease
Payments Receivable 58,288
31/10/11 Unearned
Interest Income—
Leases..................... 20,559
Interest
Income—Leases... 20,559
($24,671
÷ 12 X 10)
1/1/12 Cash .................. 58,288
Lease
Payments Receivable 58,288
31/10/12 Unearned
Interest Income—
Leases..................... 21,870
Interest
Income—Leases... 21,870
($24,671
÷ 12 X 2) + ($21,310 ÷ 12 X 10)
