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.
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.)
Bidwell leasing purchased a single engine plan for a fair value of $7,71,147 and leased it to Red Baron Flying club. Now, the lease payments of $135000 are already calculated for us. There are 8 lease payments the first one on 1st Jan, 2018 and remaining from 31st Dec 2018 to 31st Dec 2024. The first payment i.e. the one made on 1st Jan, 2018 will be treated as down payment.
The lease payment includes both the principal portion and the interest portion. The down payment on 1st Jan 2018 is considered only towards the principal portion while for the remaining we will calculate both the interest and principal and prepare an amortization schedule.
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