Answer:
Souvenirs Corporation (Lessee)
A. Amortization Schedule
Beginning Balance Interest Principal Ending Balance
1 $430,300.00 $47,333.00 $3,007.44 $427,292.56
2 $427,292.56 $47,002.18 $3,338.26 $423,954.31
3 $423,954.31 $46,634.97 $3,705.46 $420,248.84
4 $420,248.84 $46,227.37 $4,113.06 $416,135.78
5 $416,135.78 $45,774.94 $4,565.50 $411,570.28
6 $411,570.28 $45,272.73 $5,067.71 $406,502.57
7 $406,502.57 $44,715.28 $5,625.15 $400,877.42
8 $400,877.42 $44,096.52 $6,243.92 $394,633.50
9 $394,633.50 $43,409.68 $6,930.75 $387,702.74
10 $387,702.74 $42,647.30 $7,693.14 $380,009.61
11 $380,009.61 $41,801.06 $8,539.38 $371,470.23
12 $371,470.23 $40,861.73 $9,478.71 $361,991.52
13 $361,991.52 $39,819.07 $10,521.37 $351,470.15
14 $351,470.15 $38,661.72 $11,678.72 $339,791.43
15 $339,791.43 $37,377.06 $12,963.38 $326,828.05
16 $326,828.05 $35,951.09 $14,389.35 $312,438.69
17 $312,438.69 $34,368.26 $15,972.18 $296,466.51
18 $296,466.51 $32,611.32 $17,729.12 $278,737.39
19 $278,737.39 $30,661.11 $19,679.32 $259,058.07
20 $259,058.07 $28,496.39 $21,844.05 $237,214.02
21 $237,214.02 $26,093.54 $24,246.89 $212,967.12
22 $212,967.12 $23,426.38 $26,914.05 $186,053.07
23 $186,053.07 $20,465.84 $29,874.60 $156,178.47
24 $156,178.47 $17,179.63 $33,160.81 $123,017.67
25 $123,017.67 $13,531.94 $36,808.49 $86,209.17
26 $86,209.17 $9,483.01 $40,857.43 $45,351.75
27 $45,351.75 $4,988.69 $45,351.75 -$0.00
Payment Every Year = $50,340.44
B. Journal Entries for first two years of the lease for the Lessee:
2020:
Debit Right of Use Asset $1,359,191.80
Credit Lease Liability $1,359,191.80
To record the lease for 27 years.
Debit Lease Liability $3,007.44
Debit Interest on Lease $47,333.00
Credit Cash $50,340.44
To record the lease interest expense.
2021:
Debit Lease Liability $3,338.26
Debit Interest on Lease $47,002.18
Credit Cash $50,340.44
To record the lease interest expense.
Explanation:
a) Data and Calculations
Cost of Machine = $430,300
Useful life of machine = 27 years
Salvage value = $0
Expected return on investment = 11%
Period of equal rental payments = 27 years
From the online financial calculator:
Payment Every Year = $50,340.44
Total of 27 Payments = $1,359,191.80
Total Interest = $928,891.80
Amortization Table shows that at the end of 27 years:
Principal = 32%
Interest = 68% of the total lease payments.
