Amortization schedule describing the pattern of interest

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Reference no: EM131223336

On December 31, 2012, XYZ Co leased equipment to ABC Co for a 4 year period ending December 31, 2016, at which time the leased asset will revert back to XYZ Co. The equipment cost XYZ Co $550,000 and has an expected useful life of 6 years. Its normal sales price is $550,000. The lessee-guaranteed residual value at December 31, 2016, is $15,000. Equal payments under the lease are $150,000 and are due December 31 of each year. The first payment was made on December 31, 2012. Collectibility of the remaining lease payments is reasonably assured, and XYZ Co. has no material cost uncertainties. ABC's incremental borrowing rate is 9%. ABC knows the interest rate implicit in the lease payments is 8%. Both companies use straight-line depreciation.

Prepare an amortization schedule describing the pattern of interest over the lease term for the lessee and the lessor. Round to the nearest dollar. Show the forumlas on how the numbers were obtained.

Reference no: EM131223336

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