Page 16

Spiceland_Inter_Accounting8e_Ch15

866 SECTION 3 Financial Instruments and Liabilities December 31, 2016 (to accrue interest) Sans Serif Publishers, Inc. (Lessee) Interest expense 10% 3 ($479,079 2 100,000) ........................ 37,908 Interest payable ................................................................... 37,908 First LeaseCorp (Lessor) Interest receivable .................................................................... 37,908 Interest revenue 10% 3 ($479,079 2 100,000) ................. 37,908 Second Lease Payment (January 1, 2017) Sans Serif Publishers, Inc. (Lessee) Interest payable (from adjusting entry above) ............................ 37,908 Lease payable (difference) ........................................................ 62,092 Cash (lease payment) ............................................................ 100,000 First LeaseCorp (Lessor) Cash (lease payment) ................................................................. 100,000 Lease receivable (difference) ................................................ 62,092 Interest receivable (from adjusting entry above) ................... 37,908 Illustration 15–6C Journal Entries When Interest Is Accrued Prior to the Lease Payment Concept Review Exercise DIRECT FINANCING LEASE United Cellular Systems leased a satellite transmission device from Pinnacle Leasing Services on January 1, 2017. Pinnacle paid $625,483 for the transmission device. Its fair value is $625,483. Terms of the Lease Agreement and Related Information: Lease term 3 years (6 semiannual periods) Semiannual rental payments $120,000 at beginning of each period Economic life of asset 3 years Interest rate 12% Required: 1. Prepare the appropriate entries for both United Cellular Systems and Pinnacle Leasing Services on January 1, the inception of the lease. 2. Prepare an amortization schedule that shows the pattern of interest expense for United Cellular Systems and interest revenue for Pinnacle Leasing Services over the lease term. 3. Prepare the appropriate entries to record the second lease payment on July 1, 2017, and adjusting entries on December 31, 2017 (the end of both companies’ fiscal years). Solution: 1. Prepare the appropriate entries for both United Cellular Systems and Pinnacle Leasing Services on January 1, the inception of the lease. Present value of periodic rental payments: ($120,000 3 5.21236*) 5 $625,483 *Present value of an annuity due of $1: n 5 6, i 5 6%. Calculation of the present value of minimum lease payments. January 1, 2017 United Cellular Systems (Lessee) Leased equipment (calculated above) ........................................ 625,483 Lease payable (calculated above) .......................................... 625,483 Lease payable ............................................................................ 120,000 Cash (lease payment) ............................................................. 120,000 (continued)


Spiceland_Inter_Accounting8e_Ch15
To see the actual publication please follow the link above