Bidwell Leasing purchased a single-engine plane for its fair value of $771,147 and leased it to Red Baron Flying Club on January 1, 2018.(FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Terms of the lease agreement and related facts were:
Terms of the lease agreement and related facts were:
- Eight annual payments of $135,000 beginning January 1, 2018, the beginning of the lease, and at each December 31 through 2024. Bidwell Leasing’s implicit interest rate was 11%. The estimated useful life of the plane is eight years. Payments were calculated as follows:
| Amount to be recovered (fair value) | $ | 771,147 | |
| Lease payments at the beginning of each of the next eight years: ($771,147÷ 5.7122*) | $ | 135,000 | |
*Present value of an annuity due of $1: n = 8, i = 11%.
- Red Baron's incremental borrowing rate is 12%.
- Incremental Costs of negotiating and consummating the completed lease transaction incurred by Bidwell Leasing were $21,091.
5. Prepare an amortization schedule that describes the pattern of interest revenue over the lease term for Bidwell Leasing. (Round your intermediate calculations to the nearest dollar amount.)
6. Prepare the appropriate entries for both Red Baron and Bidwell Leasing on December 31, 2018 (the second lease payment). Both companies use straight-line
7. Prepare the appropriate entries for both Red Baron and Bidwell Leasing on December 31, 2024 (the final lease payment). Both companies use straight-line depreciation. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate calculations to the nearest dollar amount.)
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