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Acct 557 Week 4 Essay

1175 words - 5 pages

Problem 1:
Kingdom Leasing Inc. agrees to lease jousting equipment to Knight Inc. on Jan 1, 2012. They agree on the following terms: |
| |
1) The normal selling price of the jousting equipment is $325000 and the cost of the asset to Kingdom Leasing Inc. was $250000. |
2) Knight will pay all maintenance, insurance and taxes costs directly and annual payments of $60000 on Jan 1 each year. |
3) The lease begins on Jan 1, 2012 and payments will be in equal annual installments. |
4) The lease is noncancelable with no renewal option. The lease term is 10 years (the same as the estimated economic life). |
5) At the end of the lease, the jousting ring will revert to Kingdom ...view middle of the document...

Lease Amortization Schedule Annuity Due Basis, Unguaranteed Residual Value Date Ann. Pmt./Res.Val. Int.10% Lease Rec.Rec. Lease Bal 1/1/2012 $417,108 1/1/2012 $60,000 $0 $60,000 $357,108 1/1/2013 $60,000 $35,711 $24,289 $332,819 1/1/2014 $60,000 $33,282 $26,718 $306,100 1/1/2015 $60,000 $30,610 $29,390 $276,710 1/1/2016 $60,000 $27,671 $32,329 $244,381 1/1/2017 $60,000 $24,438 $35,562 $208,820 1/1/2018 $60,000 $20,882 $39,118 $169,702 1/1/2019 $60,000 $16,970 $43,030 $126,672 1/1/2020 $60,000 $12,667 $47,333 $79,339 1/1/2021 $60,000 $7,934 $52,066 $27,273 12/31/2021 $30,000 $2,727 $27,273 $0 |
c) Prepare all the journal entries for Kingdom for 2012. Assume a calendar year fiscal year.To record sales-type transactions at inception on January 1, 2012 Lease Receivable $417,108 Cost Of Goods Sold $238,434 Sales Revenue $405,542 Inventory $250,000 To record payment of the direct cost expenses relating to the lease Selling Expenses $6,500 Cash $6,500 To record receipt of the lease payment on January 1, 2012 Cash $60,000 Lease Receivable $60,000 To record interest revenue earned during 2012 - first year of the lease Interest Receivable $35,711 Interest Revenue $35,711 |
|
Problem 2:
Kingdom Leasing Inc. agrees to lease jousting equipment to Knight Inc. on Jan 1, 2012. They agree on the following terms: |
| |
1) The normal selling price of the jousting equipment is $325000 and the cost of the asset to Kingdom Leasing Inc. was $250000. |
2) Knight will pay all maintenance, insurance and taxes costs directly and annual payments of $60000 on Jan 1 each year. |
3) The lease begins on Jan 1, 2012 and payments will be in equal annual installments. |
4) The lease is noncancelable with no renewal option. The lease term is 10 years (the same as the estimated economic life). |
5) At the end of the lease, the jousting ring will revert to Kingdom Leasing Inc. and have an unguaranteed residual value of $30000. Their implicit interest rate is 10%. |
6) Kingdom Leasing, Inc. Incurred costs of $6500 in negotiating and closing the lease. There are no uncertainties regarding additional costs yet to be incurred and the collectability of the lease payments is reasonably predictable. |
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