AI Rubber is one of four suppliers of molded rubber products and has a 45% market share. The market for its products is shrinkin
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Answer:
<u>Jan 1st, 2021 entry:</u>
Equipment 746,168 debit
Lease Liability 723,668 credit
Cash 22,500 credit
<u>April 1st, 2021 entry:</u>
Interest expense 7,537 debit
Lease Liability 15,263 debit
Cash 22,800 credit
Explanation:
We will assume a 750,000 sales revenue per quarter. As this was their historical and expected value:
750,000 x 3% = 22,500 per quarter
Now, we solve for the present value of the lease payment:
C 22,500
time 40 (10 years x 4 quarter per year)
rate 0.01 (4% annual / 4 quarters)
PV $746,168.2419
we subtract the first payment of 22,500
lease liability reocrded in the enrty: 723.668
As lease sales were 760,000
lease payment: 760,000 x 3% = 22,800
less expected of 22,500 = 300 additional interest expense
interest expense: 723,668 x 0.01 = 7,237 + 300 = 7,537
amortization on lease liability: 22,800 -7,537 = 15,263