Respuesta :
Answer:
1. The quarterly lease payments of $15,000 is calculated using the formula for calculating the present value (PV) of annuity due as shown below.
2. See the journal entries below.
Explanation:
1. Show how International Machines determined the $15,000 quarterly lease payments.
Since the quarterly rental payments of $15,000 are made at the beginning of each period, we use the formula for calculating the present value (PV) of annuity due given as follows:
FVA = P * [{1 - [1 ÷ (1 + r)]^n} ÷ r] * (1 + r) .................................. (1)
Where ;
FVA = Present value or fair value of asset = $112,080
P = quarterly lease payment = ?
r = implicit interest rate = 8% / 4 = 2%, or 0.02
n = number of quarters = 8
Substituting the values into equation (1) above, we have:
$112,080 = P * [{1 - [1 ÷ (1 + 0.02)]^8} ÷ 0.02] * (1 + 0.02)
$112,080 = P * 7.32548144049444 * (1.02)
$112,080 = P * 7.47199106930432
P = $112,080 / 7.47199106930432
P = $15,000
2. Prepare appropriate entries for International Machines to record the lease at its beginning, January 1, 2018, and the second lease payment on April 1, 2018.
Before doing this, the following are first calculated:
Lease revenue as on April 1, 2018 = ($112,080 - 15,000) * 2% = $1,942
Lease receivable as on April 1, 2018 = $15,000 - $1,942 = $13,058
The journal entries are therefore as follows:
Date Particulars Dr ($) Cr ($)
1 Jan 18 Lease Receivable 112,080
Cost of Goods Sold 85,000
Inventory of Equipment 85,000
Sales Revenue 112,080
Cash 15,000
Lease Receivable 15,500
(To record the lease at its beginning.)
1 Apr 18 Cash 15,000
Lease Revenue 1,942
Lease Receivable 13,058
(To record the second lease payment.)
