Lessee and Lessor Accounting Issues
Response to the following problem:
The following information is available for a noncancelable lease of equipment that is classified as a sales-type lease by the lessor and as a capital lease by the lessee. Assume that the lease payments are made at the beginning of each month, interest and straight-line depreciation are recognized at the end of each month, and the residual value of the leased asset is zero at the end of a three-year life.
Cost of equipment to lessor (Anson Company) $50,000
Initial payment by lessee (Bullard Company) at inception of lease 2,000
Present value of remaining 35 payments of $2,000 each discounted at 1% per month 58,817
Required:
1. Record the lease (including the initial receipt of $2,000) and the receipt of the second and third installments of $2,000 in the accounts of the Anson Company. Carry computations to the nearest dollar.
2. Record the lease (including the initial payment of $2,000), the payment of the second and third installments of $2,000, and monthly depreciation in the accounts of the Bullard Company. The lessee records the lease obligation at net present value. Carry computations to the nearest dollar.