Calculate the annual lease payment

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Reference no: EM132777978

Question - Jaguars Corp., a private corporation that adheres to ASPE, is a manufacturer of truck trailers. On January 1, 2020, Jaguars leases ten trailers to Bengals Inc. under a four-year non-cancellable lease agreement. The following information about the lease and the trailers is provided:

1. Equal annual payments, due on December 31 each year, will be payable, to provide Jaguars with an 7% return on their investment.

2. Title to the trailers will pass to Bengals at the end of the lease.

3. At January 1, 2020, the fair value of each trailer is $ 50,000. The cost of each trailer to Jaguars Corp. is $ 20,000. Each trailer has an expected useful life of five years.

4. Collectibility of the lease payments is reasonably assured, and any non-reimbursable costs under the lease that are likely to be incurred by Jaguars can be reasonably estimated.

Instructions -

a) What type of lease is this for the lessor? Discuss your criteria and assumptions.

b) Calculate the annual lease payment. Show details of your calculation and round the amount to the nearest dollar.

c) Prepare a lease amortization schedule for Jaguars Corp. for the first three years, ending December 31, 2022.

d) Prepare the journal entries for the lessor for 2020 and 2021 to record the lease agreement, the receipt of the lease rentals, and the recognition of income. Round all amounts to the nearest dollar.

Reference no: EM132777978

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