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Spiceland_Inter_Accounting8e_Ch15

CHAPTER 15 Leases 867 (concluded) Pinnacle Leasing Services (Lessor) Lease receivable (calculated above) ........................................... 625,483 Inventory of equipment (lessor’s cost) ................................... 625,483 Cash (lease payment) .................................................................. 120,000 Lease receivable ................................................................... 120,000 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. Date Payments Effective Interest (6% 3 Outstanding balance) 1/1/17 625,483 1/1/17 120,000 120,000 505,483 7/1/17 120,000 .06 (505,483) 5 30,329 89,671 415,812 1/1/18 120,000 .06 (415,812) 5 24,949 95,051 320,761 7/1/18 120,000 .06 (320,761) 5 19,246 100,754 220,007 1/1/19 120,000 .06 (220,007) 5 13,200 106,800 113,207 7/1/19 120,000 .06 (113,207) 5 6,793* 113,207 0 720,000 94,517 625,483 *Adjusted for rounding of other numbers in the schedule. 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). July 1, 2017 Decrease in Balance United Cellular Systems (Lessee) Interest expense 6% 3 ($625,483 2 120,000) ........................... 30,329 Lease payable (difference) ......................................................... 89,671 Outstanding Balance Cash (lease payment) ............................................................. 120,000 Pinnacle Leasing Services (Lessor) Cash (lease payment) .................................................................. 120,000 Lease receivable (difference) ................................................. 89,671 Interest revenue 6% 3 ($625,483 2 120,000) .................... 30,329 December 31, 2017 United Cellular Systems (Lessee) Interest expense (6% 3 $415,812: from schedule) ................... 24,949 Interest payable .................................................................... 24,949 Depreciation expense ($625,483 ÷ 3 years) ............................. 208,494 Accumulated depreciation ................................................... 208,494 Pinnacle Leasing Services (Lessor) Interest receivable ..................................................................... 24,949 Interest revenue (6% 3 $415,812: from schedule) ................ 24,949 Let’s turn our attention now to situations in which the lessors are manufacturers or retailers and use lease arrangements as a means of selling their products. Sales-Type Leases A sales-type lease differs from a direct financing lease in only one respect. In addition to interest revenue generated over the lease term, the lessor receives a manufacturer’s or dealer’s profit on the “sale” of the asset. 19 This additional profit exists when the fair value of the ● LO15–6 19 A lessor need not be a manufacturer or a dealer for the arrangement to qualify as a sales-type lease. The existence of a profit (or loss) on the sale is the distinguishing factor.


Spiceland_Inter_Accounting8e_Ch15
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