(a) Gothic Corporation (Lessee) June 30, 2013 Rent expense 40,000 Cash 40,000 December 31, 2013 Rent expense 40,000 Cash 40,000 (b) HardWhere (Lessor) June 30, 2013 Cash 40,000 Rent revenue 40,000 December 31, 2013 Cash 40,000 Rent revenue 40,000 Depreciation expense ($350,000 ÷ 5 years) 70,000 Accumulated depreciation 70,000 Present Value of Minimum Lease Payments: ($10,000 x 10.78685*) = $107,866 lease present payments value * present value of an annuity due of $1: n=12, i=2% [i = 2% (8% ÷ 4) because the lease calls for quarterly payments] Requirement 1 Lease Amortization Schedule Lease Effective Decrease Outstanding Payments Interest in Balance Balance 2% x Outstanding Balance 107,866 1 10,000 10,000 97,886 2 10,000 .02 (97,886) = 1,957 8,043 89,823 3 10,000 .02 (89,823) = 1,796 8,204 81,619 4 10,000 .02 (81,619) = 1,632 8,368 73,251 5 10,000 .02 (73,251) = 1,465 8,535 64,716 6 10,000 .02 (64,716) = 1,294 8,706 56,010 7 10,000 .02 (56,010) = 1,120 8,880 47,130 8 10,000 .02 (47,130) = 943 9,057 38,073 9 10,000 .02 (38,073) = 761 9,239 28,834 10 10,000 .02 (28,834) = 577 9,423 19,411 11 10,000 .02 (19,411) = 388 9,612 9,799 12 10,000 .02 (9,799) = 201* 9,799 0 120,000 12,134 107,866 * adjusted for rounding of other numbers in the schedule January 1, 2013 Leased equipment (calculated above) 107,866 Lease payable (calculated above) 107,866 Lease payable 10,000 Cash (lease payment) 10,000 April 1, 2013 Interest expense (2% x [$107,866 – 10,000]) 1,957 Lease payable (difference) 8,043 Cash (lease payment) 10,000 July 1, 2013 Interest expense (2% x $89,823: from schedule) 1,796 Lease payable (difference) 8,204 Cash (lease payment) 10,000 October 1, 2013 Interest expense (2% x $81,619: from schedule) 1,632 Lease payable (difference) 8368 Cash (lease payment) 10,000 December 31, 2013 Interest expense (2% x $73,251: from schedule) 1,465 Interest payable 1,465 Depreciation expense ($107,866 ÷ 3 years) 35,955 Accumulated depreciation 35,955 January 1, 2014 Interest payable (from adjusting entry) 1,465 Lease payable (difference) 8,535 Cash (lease payment) 10,000 Requirement 2 Lease Amortization Schedule Lease Effective Decrease Outstanding Payments Interest in Balance Balance 2% x Outstanding Balance 107,866 1 10,000 10,000 97,886 2 10,000 .02 (97,886) = 1,957 8,043 89,823 3 10,000 .02 (89,823) = 1,796 8,204 81,619 4 10,000 .02 (81,619) = 1,632 8,368 73,251 5 10,000 .02 (73,251) = 1,465 8,535 64,716 6 10,000 .02 (64,716) = 1,294 8,706 56,010 7 10,000 .02 (56,010) = 1,120 8,880 47,130 8 10,000 .02 (47,130) = 943 9,057 38,073 9 10,000 .02 (38,073) = 761 9,239 28,834 10 10,000 .02 (28,834) = 577 9,423 19,411 11 10,000 .02 (19,411) = 388 9,612 9,799 12 10,000 .02 (9,799) = 201* 9,799 0 120,000 12,134 107,866 * adjusted for rounding of other numbers in the schedule January 1, 2013 Lease receivable (present value of lease payments) 107,866 Inventory of equipment (lessor’s cost) 107,866 Cash (lease payment) 10,000 Lease receivable 10,000 April 1, 2013 Cash (lease payment) 10,000 Lease receivable (to balance) 8,043 Interest revenue (2% x [$107,866 – 10,000]) 1,957 July 1, 2013 Cash (lease payment) 10,000 Lease receivable (to balance) 8,204 Interest revenue (2% x $89,826: from schedule) 1,796 October 1, 2013 Cash (lease payment) 10,000 Lease receivable (to balance) 8,368 Interest revenue (2% x $81,619: from schedule) 1,632 December 31, 2013 Interest receivable 1,465 Interest revenue (2% x $73,251: from schedule) 1,465 January 1, 2014 Cash (lease payment) 10,000 Lease receivable (to balance) 8,535 Interest receivable (from adjusting entry) 1,465 Requirement 1 Lessor’s Calculation of Lease Payments Amount to be recovered (fair value) $107,866 Show More
