Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Tamarisk Company. The following information relates to this agreement.

1. The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years.

2. The fair value of the asset at January 1, 2020, is $85,000.

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 $5,000, none of which is guaranteed.

4. The agreement requires equal annual rental payments of $27,911 to the lessor, beginning on January 1, 2020.

5. The lessee’s incremental borrowing rate is 5%. The lessor’s implicit rate is 4% and is unknown to the lessee.

6. Tamarisk uses the straight-line depreciation method for all equipment.

Prepare an amortization schedule that would be suitable for the lessee for the lease term. (Round answers to 0 decimal places, e.g. 5,265.)

TAMARISK COMPANY (Lessee)
Lease Amortization Schedule

Date

Annual Lease
Payment

Interest on
Liability

Reduction of Lease
Liability

Lease Liability

1/1/20

$enter a dollar amount

$enter a dollar amount

$enter a dollar amount

$enter a dollar amount

1/1/20

enter a dollar amount

enter a dollar amount

enter a dollar amount

enter a dollar amount

1/1/21

enter a dollar amount

enter a dollar amount

enter a dollar amount

enter a dollar amount

1/1/22

enter a dollar amount

enter a dollar amount

enter a dollar amount

enter a dollar amount

$enter a total amount for this column

$enter a total amount for this column

$enter a total amount for this column

Prepare all of the journal entries for the lessee for 2020 and 2021 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee’s annual accounting period ends on December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,265. Record journal entries in the order presented in the problem.)

Date

Account Titles and Explanation

Debit

Credit

Enter transaction date

(To record the lease)

Enter a transaction date

(To record lease payment)

Enter transaction date

(To record interest expense)

Enter transaction date

(To record amortization of the right-of-use asset)

Enter transaction date

(To reverse interest expense)

Enter transaction date

(To record lease payment)

Enter transaction date

(To record interest expense)

Enter transaction date

(To record amortization of the right-of-use asset)

This is a list of the accounts that can be used:

Accounts Payable

Accumulated Depreciation-Buildings

Accumulated Depreciation-Leased Buildings

Accumulated Depreciation-Capital Leases

Accumulated Depreciation-Equipment

Accumulated Depreciation-Leased Equipment

Accumulated Depreciation-Leased Machinery

Accumulated Depreciation-Machinery

Accumulated Depreciation-Right-of-Use Asset

Advertising Expense

Amortization Expense

Airplanes

Buildings

Cash

Cost of Goods Sold

Deferred Gross Profit

Deposit Liability

Depreciation Expense

Equipment

Executory Costs

Executory Costs Payable

Gain on Disposal of Equipment

Gain on Disposal of Plant Assets

Gain on Lease

Gain on Sale of Buildings

Insurance Expense

Interest Expense

Interest Payable

Interest Receivable

Interest Revenue

Inventory

Land

Leased Asset

Leased Buildings

Leased Equipment

Lease Expense

Leased Land

Lease Liability

Lease Receivable

Lease Revenue

Legal Expense

Loss on Capital Lease

Machinery

Maintenance and Repairs Expense

Notes Payable

Prepaid Lease Executory Costs

Prepaid Legal Fees

Property Tax Expense

Property Tax Payable

Rent Expense

Rent Payable

Rent Receivable

Rent Revenue

Revenue from Sale-Leaseback

Right-of-Use Asset

Salaries and Wages Expense

Sales Revenue

Selling Expenses

Trucks

Unearned Profit on Sale-Leaseback

Unearned Lease Revenue

Unearned Service Revenue

(The second attached image with the account journalization is missing some of the titles but there are a total of 17 account titles. the text above is probably more accurate in that regard.)

Transcribed Image Text:TAMARISK COMPANY (Lessee) Lease Amortization Schedule Annual Lease Interest on Reduction of Lease Date Payment Liability Liability Lease Liability 1/1/20 1/1/20 1/1/21 1/1/22 2$ %24 %24 %24 %4 %24 %24
Transcribed Image Text:Date Account Titles and Explanation Debit Credit (To record the lease) (To record lease payment) (To record interest expense) (To record amortization of the right-of-use asset)

Question

Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Tamarisk Company. The following information relates to this agreement.

1.		The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years.
2.		The fair value of the asset at January 1, 2020, is $85,000.
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 $5,000, none of which is guaranteed.
4.		The agreement requires equal annual rental payments of $27,911 to the lessor, beginning on January 1, 2020.
5.		The lessee’s incremental borrowing rate is 5%. The lessor’s implicit rate is 4% and is unknown to the lessee.
6.		Tamarisk uses the straight-line depreciation method for all equipment.

Prepare an amortization schedule that would be suitable for the lessee for the lease term. (Round answers to 0 decimal places, e.g. 5,265.)

TAMARISK COMPANY (Lessee) Lease Amortization Schedule
Date	Annual Lease Payment	Interest on Liability	Reduction of Lease Liability	Lease Liability
1/1/20	$enter a dollar amount	$enter a dollar amount	$enter a dollar amount	$enter a dollar amount
1/1/20	enter a dollar amount	enter a dollar amount	enter a dollar amount	enter a dollar amount
1/1/21	enter a dollar amount	enter a dollar amount	enter a dollar amount	enter a dollar amount
1/1/22	enter a dollar amount	enter a dollar amount	enter a dollar amount	enter a dollar amount
	$enter a total amount for this column	$enter a total amount for this column	$enter a total amount for this column

Prepare all of the journal entries for the lessee for 2020 and 2021 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee’s annual accounting period ends on December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,265. Record journal entries in the order presented in the problem.)

Date

Account Titles and Explanation

Debit

Credit

Enter transaction date

(To record the lease)

Enter a transaction date

(To record lease payment)

Enter transaction date

(To record interest expense)

Enter transaction date

(To record amortization of the right-of-use asset)

Enter transaction date

(To reverse interest expense)

Enter transaction date

(To record lease payment)

Enter transaction date

(To record interest expense)

Enter transaction date

(To record amortization of the right-of-use asset)

This is a list of the accounts that can be used:

Accounts Payable
Accumulated Depreciation-Buildings
Accumulated Depreciation-Leased Buildings
Accumulated Depreciation-Capital Leases
Accumulated Depreciation-Equipment
Accumulated Depreciation-Leased Equipment
Accumulated Depreciation-Leased Machinery
Accumulated Depreciation-Machinery
Accumulated Depreciation-Right-of-Use Asset
Advertising Expense
Amortization Expense
Airplanes
Buildings
Cash
Cost of Goods Sold
Deferred Gross Profit
Deposit Liability
Depreciation Expense
Equipment
Executory Costs
Executory Costs Payable
Gain on Disposal of Equipment
Gain on Disposal of Plant Assets
Gain on Lease
Gain on Sale of Buildings
Insurance Expense
Interest Expense
Interest Payable
Interest Receivable
Interest Revenue
Inventory
Land
Leased Asset
Leased Buildings
Leased Equipment
Lease Expense
Leased Land
Lease Liability
Lease Receivable
Lease Revenue
Legal Expense
Loss on Capital Lease
Machinery
Maintenance and Repairs Expense
Notes Payable
Prepaid Lease Executory Costs
Prepaid Legal Fees
Property Tax Expense
Property Tax Payable
Rent Expense
Rent Payable
Rent Receivable
Rent Revenue
Revenue from Sale-Leaseback
Right-of-Use Asset
Salaries and Wages Expense
Sales Revenue
Selling Expenses
Trucks
Unearned Profit on Sale-Leaseback
Unearned Lease Revenue
Unearned Service Revenue

(The second attached image with the account journalization is missing some of the titles but there are a total of 17 account titles. the text above is probably more accurate in that regard.)

TAMARISK COMPANY (Lessee)
Lease Amortization Schedule
Annual Lease
Interest on
Reduction of Lease
Date
Payment
Liability
Liability
Lease Liability
1/1/20
1/1/20
1/1/21
1/1/22
2$
%24
%24
%24
%4
%24
%24

Date
Account Titles and Explanation
Debit
Credit
(To record the lease)
(To record lease payment)
(To record interest expense)
(To record amortization of the right-of-use asset)

Accepted Answer

Calculate the Present Value of Minimum Lease Payment :

The present value of minimum lease payments…