Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Prepare the lease amortization schedule
Transcribed Image Text:**Lease Amortization Schedule for Blossom Company (Lessee)**
This table represents the lease amortization schedule for Blossom Company, providing details on annual lease payments, interest on liabilities, reduction of lease liability, and the remaining lease liability over a series of periods.
### Table Columns:
1. **Annual Lease Payment Plus GRV ($)**
- Initial period: $0
- Subsequent periods: $121,571
- Final adjustment: $5,000
- Total: $977,568
2. **Interest on Liability ($)**
- Initial period: $0
- Subsequent interest payments reduce from $41,554 to $4,000
- Total interest paid: $142,429
3. **Reduction of Lease Liability ($)**
- Initial reduction: $0
- Reductions increase progressively from $80,017 to $50,003
- Total liability reduced: $641,000
4. **Lease Liability ($)**
- Begins at $641,000
- Decreases steadily to $0
- Final value: $0 (indicating lease liability is fully settled)
### Explanation:
- **Annual Lease Payment Plus GRV** column shows the regular payment amounts made by Blossom Company, which vary slightly in the final period.
- **Interest on Liability** depicts the interest calculations, which decrease as the remaining lease liability is reduced.
- **Reduction of Lease Liability** indicates the portion of each payment that goes toward reducing the lease principal.
- **Lease Liability** summarizes the outstanding balance after each payment.
This schedule allows users to track how the lease liability diminishes over time through scheduled payments and interest application.
Transcribed Image Text:The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Blossom Company, a lessee.
- **Commencement date**: January 1
- **Annual lease payment due at the beginning of each year, beginning with January 1**: $121,571
- **Residual value of equipment at end of lease term, guaranteed by the lessee**: $54,000
- **Expected residual value of equipment at end of lease term**: $49,000
- **Lease term**: 6 years
- **Economic life of leased equipment**: 6 years
- **Fair value of asset at January 1**: $641,000
- **Lessor’s implicit rate**: 8%
- **Lessee’s incremental borrowing rate**: 8%
The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment.
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