Universal Leasing leases electronic equipment to a variety of businesses. The company’s primary service is providing alternate financing by acquiring equipment and leasing it to customers under long-term direct financing leases. Universal earns interest under these arrangements at a 10% annual rate. The company leased an electronic typesetting machine it purchased for Tk. 30,900 to a local publisher, Desktop Inc., on December 31, 2012. The lease contract specified annual payments of Tk. 8,000 beginning January 1, 2013, the inception of the lease, and each December 31 through 2014 (three-year lease term). The publisher had the option to purchase the machine on December 30, 2015, the end of the lease term, for Tk. 12,000 when it was expected to have a residual value of Tk. 16,000. Requirements: i Show how Universal calculated the Tk. 8,000 annual lease payments for this direct financing lease. ii. Prepare an amortization schedule that describes the pattern of interest revenue for Universal Leasing over the lease term. iii. Prepare the appropriate entries for Universal Leasing from the inception of the lease through the end of the lease term.
Universal Leasing leases electronic equipment to a variety of businesses. The company’s
primary service is providing alternate financing by acquiring equipment and leasing it to
customers under long-term direct financing leases. Universal earns interest under these
arrangements at a 10% annual rate. The company leased an electronic typesetting
machine it purchased for Tk. 30,900 to a local publisher, Desktop Inc., on December 31,
2012. The lease contract specified annual payments of Tk. 8,000 beginning January 1,
2013, the inception of the lease, and each December 31 through 2014 (three-year lease
term). The publisher had the option to purchase the machine on December 30, 2015, the
end of the lease term, for Tk. 12,000 when it was expected to have a residual value of Tk.
16,000.
Requirements:
i Show how Universal calculated the Tk. 8,000 annual lease payments for this direct
financing lease.
ii. Prepare an amortization schedule that describes the pattern of interest revenue for
Universal Leasing over the lease term.
iii. Prepare the appropriate entries for Universal Leasing from the inception of the lease
through the end of the lease term.
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