Reference no: EM132755459

Oakridge Leasing Corporation signs an agreement on January 1, 2017 to lease equipment to LeBlanc Limited. Oakridge and LeBlanc follow ASPE. The following information relates to the agreement.

1. The term of the non-cancellable lease is five years, with no renewal option. The equipment has an estimated economic life of six years.

2. The asset's fair value at January 1, 2017 is $80,000.

3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $7,000, which is not guaranteed.

4. LeBlanc Limited assumes direct responsibility for all executory costs, which include the following annual amounts: $900 to Rocky Mountain Insurance Ltd. for insurance and $1,600 to James Township for property taxes.

5. The agreement requires equal annual rental payments of $18,143 to Oakridge, the lessor, beginning on January 1, 2017.

6. The lessee's incremental borrowing rate is 11%. The lessor's implicit rate is 10% and is known to the lessee.

7. LeBlanc Limited uses the straight-line depreciation method for all equipment and rounds amounts to the nearest dollar.

8. LeBlanc uses reversing entries when appropriate.

Instructions Answer the following, rounding all numbers to the nearest cent.

Problem (a) Prepare an amortization schedule for LeBlanc Limited for the lease term. Use Excel and round all amounts to the nearest dollar. (Note: you may find the =round formula helpful for rounding in Excel.)

Problem (b) Prepare all of LeBlanc's journal entries for 2017 and 2018 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume that the lessee's annual accounting period ends on December 31.

Problem (c) Show the calculations that Oakridge, the lessor, used to arrive at the lease payment amount of $18,143.

Problem (d) Provide the required note disclosure for LeBlanc Limited concerning the lease for the fiscal year ending December 31, 2018.

Additional Questions

Problem (e) Verify that Oakridge Leasing set the rental payment to earn 10% rate of return.

Problem (f) Prepare an amortization schedule for Oakridge for the lease term.

Problem (g) Prepare all of Oakridge's journal entries for 2017 and 2018 to record the lease agreement, the lease payments and all other payments received. Assume that the lessor's annual accounting period ends on December 31 and carrying value of the equipment was $80,000.