# Acct Week4 Homework

294 Words2 Pages
Problem 1: Kingdom Leasing Inc. agrees to lease jousting equipment to Knight Inc. on Jan 1, 2014. They agree on the following terms: | | | 1) The normal selling price of the jousting equipment is \$410000 and the cost of the asset to Kingdom Leasing Inc. was \$250000. | 2) Knight will pay all maintenance, insurance, and tax costs directly and annual payments of \$60000 on Jan 1 each year. | 3) The lease begins on Jan 1, 2014 and payments will be in equal annual installments. | 4) The lease is noncancelable with no renewal option. The lease term is 10 years (the same as the estimated economic life). | 5) At the end of the lease, the jousting ring will revert to Kingdom Leasing Inc. and have an unguaranteed residual value of \$30000. Their implicit interest rate is 10%. | 6) Kingdom Leasing, Inc. incurred costs of \$6500 in negotiating and closing the lease. There are no uncertainties regarding additional costs yet to be incurred and the collectability of the lease payments is reasonably predictable. | | Required: | a) Determine what type of lease this would be for Kingdom Leasing Inc. and calculate the following: (Show all work.) | | Lease Receivable | | Sales Price | | Cost of Sales | b) Prepare Kingdom's amortization schedule for the lease terms. | c) Prepare all the journal entries for Kingdom for 2014. Assume a calendar year fiscal year. | Problem 2: Use the data given in Problem #1 and answer the required questions to record the lease in the Knight Inc.’s books. | Required: | a) Determine what type of lease this would be for the lessee and calculate the initial obligation. | b) Prepare Knight Inc.'s amortization schedule for the lease terms. | c) Prepare all the journal entries for Knight Inc. for 2014. Assume a calendar year fiscal year. |