91Ó°ÊÓ

Morgan Leasing Company signs an agreement on January 1, 2017, to lease equipment to Cole Company. The following information relates to this agreement.

1. The term of the noncancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years.
2. The cost of the asset to the lessor is \(245,000. The fair value of the asset at January 1, 2017, is \)245,000.
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 $43,622, none of which is guaranteed.
4. Cole Company assumes direct responsibility for all executory costs.
5. The agreement requires equal annual rental payments, beginning on January 1, 2017.
6. Collectibility of the lease payments is reasonably predictable. There are no important uncertainties surrounding the amount of costs yet to be incurred by the lessor.

Instructions

(Round all numbers to the nearest cent.)

(b) Prepare an amortization schedule that would be suitable for the lessor for the lease term.

Step by step solution

01

Meaning of Unguaranteed residual value (URV)

Unguaranteed residual value is the percentage of a leased asset's residual value whose recovery by the lessor is not guaranteed or is guaranteed only by a party linked with the lessor (URV).

02

Preparing an amortization schedule that would be suitable for the lessor for the lease term

MORGAN LEASING COMPANY (Lessor) Lease Amortization Schedule
Date	Annual Lease Payment Plus URV	Interest (10%) on Lease Receivable	Recovery of Lease Receivable	Lease Receivable
1/1/17				$245,000
1/1/17	$46,000	$ 0	$46,000	199,000
1/1/18	$46,000	19,900	26,100	172,900
1/1/19	$46,000	17,290	28,710	144,190
1/1/20	$46,000	14,419	31,581	112,609
1/1/21	$46,000	11,261	34,739	77,870
1/1/21	$46,000	7,787	38,213	39,657
12/31/22	43,622	3,965	39,657	0
	$319,622	$76,622	$245,000

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