Kubby Company specializes in leasing large storage units to other businesses. Kubby entered a contract to lease a storage unit to Riskey, Inc. for 4 years when that particular storage unit had a remaining useful life of 5 years. The fair value of the unit was $10,000 at the commencement of the lease on January 1, 2020. The present value of the five equal rental payments of $2,507 at the start of each year, plus the present value of a guaranteed residual value of $1,000, equals the fair value of $10,000, Kubby's implicit rate of return on the lease of 6%. The following is a correct, complete amortization schedule created by Kubby. Date Lease Payment Interest (6%) on Outstanding Lease Receivable Reduction of Lease Receivable Balance of Lease Receivable 1/1/20 $10,000 1/1/20 $12,507 $12,507 7,493 1/1/21 2,507 $1.450 2,057 5,436 1/1/22 2,507 326 2,181 3,255 1/1/23 2,507 195 2,312 943 12/31/23 $11,000 $10.57 $10,943 0 $11,028 $1,028 $10,000 Given the above schedule, make the appropriate entries at December 31, 2023, to record the accrual of interest and the return of the storage unit to Kubby (assuming the unit is returned on December 31, 2023, at the expected and guaranteed residual value of $1,000).
Kubby Company specializes in leasing large storage units to other businesses. Kubby entered a contract to lease a storage unit to Riskey, Inc. for 4 years when that particular storage unit had a remaining useful life of 5 years. The fair value of the unit was $10,000 at the commencement of the lease on January 1, 2020. The present value of the five equal rental payments of $2,507 at the start of each year, plus the present value of a guaranteed residual value of $1,000, equals the fair value of $10,000, Kubby's implicit
|
Date
|
Lease Payment |
Interest (6%) on Outstanding Lease Receivable |
Reduction of Lease Receivable |
Balance of Lease Receivable |
|
1/1/20
|
|
|
|
$10,000
|
|
1/1/20
|
$12,507
|
|
$12,507
|
7,493
|
|
1/1/21
|
2,507
|
$1.450
|
2,057
|
5,436
|
|
1/1/22
|
2,507
|
326
|
2,181
|
3,255
|
|
1/1/23
|
2,507
|
195
|
2,312
|
943
|
|
12/31/23
|
$11,000
|
$10.57
|
$10,943
|
0
|
|
|
$11,028
|
$1,028
|
$10,000
|
|
Given the above schedule, make the appropriate entries at December 31, 2023, to record the accrual of interest and the return of the storage unit to Kubby (assuming the unit is returned on December 31, 2023, at the expected and guaranteed residual value of $1,000).
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