The following facts pertain to a non-cancelable lease agreement between Jameson Leasing Company and

The following facts pertain to a non-cancelable lease agreement between Jameson Leasing Company and Axel Company, a lessee.

Inception date:

May 1, 2013

Annual lease payment due at the beginning of

   each year, beginning with May 1, 2013

$18,218.66

Bargain purchase option price at end of lease term

$3,780

Lease term

5 years

Economic life of Leased Equipment under Capital Leases

10 years

Lessor’s cost

$60,700

Fair value of asset at May 1, 2013

$75,700.00

Lessor’s implicit rate

12%

Lessee’s incremental borrowing rate

12%

The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs.

PV of annuity due = 4.03735

PV of $1 = 0.56743

What is the nature of this lease for Axel Company? Why?

What is the nature of this lease for Jameson Company? Why?

Prepare a lease amortization schedule for Axel Company for the 5 year term.

d) Prepare the journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the first year Ac€?o 2013.

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