Sportscraft Company is a manufacturer of specialty sports vehicles, which it sells or leases through online platforms.
Question:
Sportscraft Company is a manufacturer of specialty sports vehicles, which it sells or leases through online platforms. On 1/1/21, Sportscraft leased twelve electric golf carts to Evergreen Golf Club. Data relating to the lease follow:
Cost of equipment to Sportscraft ($4,800 each) $57,600
The fair market value of the golf carts at 1/1/21 ($7,200 each) $86,400
The useful life of equipment 5 years
Lease term 3 years
The residual value of the twelve carts at the end of the lease
(guaranteed by Evergreen Golf Club) $12,000
Residual value expected by Evergreen Golf Club $9,000
Implicit and incremental interest rates 6%
Initial direct costs incurred by Evergreen Golf Club in negotiations $6,000
Both the lessor and lessee use straight-line depreciation and have accounting periods that end on 12/31.
Required:
a. Calculate the yearly payment that Sportscraft will charge Evergreen Golf Club under this lease agreement if payments are made
on 1/1 of each year, beginning 1/1/21.
b. Prepare all journal entries that would be made by Sportscraft (lessor) during 2021 and 2022 relating to this lease.
c. Prepare all journal entries that would be made by Evergreen Golf Club (lessee) during 2021 and 2022 relating to this lease.
d. Prepare the journal entries made by both Sportscraft and Evergreen Golf Club with respect to the lease termination if the actual residual
value of the twelve golf carts is $8,500.
Cost Management A Strategic Emphasis
ISBN: 978-0078025532
6th edition
Authors: Edward Blocher, David Stout, Paul Juras, Gary Cokins