1. Fields Leasing Corp. purchased equipment and immediately leased it to Dalton, Inc. on January 1, 2021. The fair value of the equipment was $288,000 and Fields requires 4 equal annual payments of $61,495 starting on January 1, 2021. Also, Fields structured the payments to yield a 9% return and expects the equipment to have a residual value of $100,000 at the end of the lease term. The equipment is expected to have a useful life of 8 years. There are no provisions for a purchase option. The equipment will be returned to Fields at the end of the lease and is not of a specialized nature.

Instructions

1. Assume that the residual value is unguaranteed and Dalton does not know the interest rate implicit in the lease. Dalton’s incremental borrowing rate is 8%. Prepare Dalton’s amortization schedule.

2. Prepare the journal entries for Dalton at January 1, 2021, December 31, 2021, and January 1, 2022 assuming that no interim adjusting entries are recorded.

Answer rating: 100% (QA)

Calculation of minimum lease liability PV of annual lease payment 61495xPVAD84 219974 6149... View the full answer