Bing Leasing, Inc. agrees to lease equipment to Boyd, Inc. on 1st January, 2012. They agree on the subsequent terms.
1) The normal selling price of equipment is $300,000 and cost of the asset to Bing Leasing, Inc. was $250,000.
2) The lease is no cancelable with no renewal option. The lease term is 10 years (the similar as the estimated economic life).
3) The lease starts on January 1, 2012 and payments will be in equivalent annual installments.
4) At end of the lease, the equipment will revert to Bing Leasing, Inc. and have an unguaranteed residual value of $30,000. Their implicit interest rate is 10 percent.
5) Boyd will pay all maintenance, insurance, and tax costs straight and annual payments of $32,000 on January 1 of every year.
6) Bing Leasing, Inc. incurred costs of $2,000 in closing and negotiating the lease. There are no uncertainties regarding additional costs yet to be incurred and collectability of the lease payments is reasonably predictable.
Required:
a) Evaluate what type of lease this would be for the lessor and evaluate the following.
Lease Receivable
Sales Price
Cost of Sales
b) Create Bing's amortization schedule for lease terms.
c) Create all journal entries for Kingdom for 2012. Suppose a calendar year fiscal year.