Crane Company specializes in leasing large storage units to other businesses. Crane entered a contract to lease a storage unit to Riskey, Inc. for 4 years when that particular storage unit had a remaining useful life of 5 years. The fair value of the unit was $12,000 at the commencement of the lease on January 1, 2020. The present value of the five equal rental payments of $3,002 at the start of each year, plus the present value of a guaranteed residual value of $1,000, equals the fair value of $12,000, Crane’s implicit rate of return on the lease of 5%. The following is a correct, complete amortization schedule created by Crane.
Crane Company specializes in leasing large storage units to other businesses. Crane entered a contract to lease a storage unit to Riskey, Inc. for 4 years when that particular storage unit had a remaining useful life of 5 years. The fair value of the unit was $12,000 at the commencement of the lease on January 1, 2020. The present value of the five equal rental payments of $3,002 at the start of each year, plus the present value of a guaranteed residual value of $1,000, equals the fair value of $12,000, Crane’s implicit
| Date | Lease Payment | Interest (5%) on Outstanding Lease Receivable |
Reduction of Lease Receivable |
Balance of Lease Receivable |
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| 1/1/20 | $12,000 | ||||||||||||||
| 1/1/20 | $3,002 | $3,002 | 8,998 | ||||||||||||
| 1/1/21 | 3,002 | $450 | 2,552 | 6,446 | |||||||||||
| 1/1/22 | 3,002 | 322 | 2,680 | 3,766 | |||||||||||
| 1/1/23 | 3,002 | 188 | 2,814 | 952 | |||||||||||
| 12/31/23 | 1,000 | 48 | 952 | 0 | |||||||||||
| $13,008 | $1,008 | $12,000 |
Given the above schedule, make the appropriate entries at December 31, 2023, to record the accrual of interest and the return of the storage unit to Crane (assuming the unit is returned on December 31, 2023, at the expected and guaranteed residual value of $1,000). (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
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Account Titles and Explanation
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Debit
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Credit
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(To record accrual of interest)
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(To record residual value of asset)
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