Exercise 216 Whispering Company a machinery dealer leased a

Exercise 21-6 Whispering Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2017. The lease is for an 8-year period and requires equal annual payments of $36,063 at the beginning of each year. The first payment is received on January 1, 2017. Whispering had purchased the machine during 2016 for $174,000. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by whispering, whispering set the annual rental to ensure an 11% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Whispering at the termination of the lease Click here to viey factor tables Compute the amount of the lease receivable. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to o decimal places e.g. 58,971.) The amount of the lease receivable SHOW LIST OF ACCOUNTS

Solution

Ans. Since Maximum time of machine is utilized by the Leasee so we should consider this lease as Capital lease of finance lease. total lease period is 8yrs

a. Calculation of amt of lease receivable

Date Lease payment PV @11% PV of CF (axb)

(a) (b)

Jan 2017 36063 .900 32457   

Jan 2018 36063 .812 29283

Jan 2019 36063 .731 26362

Jan 2020 36063 .659 23766   

Jan 2021 36063 .593 21385

Jan 2022 36063 .535 19294

Jan 2023 36063 .482 17382

Jan 2024 36063 .434 15651

Total 185580

Minimum Lease Payment or Total amt receivable for lease is = 185580

   Journal Entry in the books of Whispering

   for the year of 2017

1 jan 2017 Dexter Corporation A/c 185580

   To Machinery A/c 185580

   (Recording for Recording Finance /capital lease)

Cash/Bank A/c Dr 36063

To Lease Receivable A/c 36063

(Lease amt received for First year at the begning of the year)

31 Dec 2017

Lease Receivable A/c Dr 36063

To Dexter Corporation A/c 32063

To Finance Charge (11%) 4000