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    Clayton Co Lease Amortization Schedule & JEs

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    Kimono Leasing Company (lessor) and Clayton Company (lessee) entered a six-year non-cancellable lease on January 1, 2014.

    The annual lease payment of $81,365 is due at the start of each year, with the first payment on January 1, 2014.
    There is also a guaranteed residual value of $50,000 that is due at the end of the lease term.

    The leased equipment has a six-year expected economic life and a fair value at sigining of $400,000.
    12% Implicit rate for Kimono Leasing Company
    12% Incremental borrowing rate for Kimono Leasing Company
    $4,000 Executory costs per year which Clayton Company is responsible for paying.
    The asset will return to the lessor at the end of the term leased.

    Straight-line depreciation method is used for the equipment by Clayton Company.

    Create an amortization schedule for this lease in Excel for the full lease term. Prepare the journal entries for Clayton Company for 2014 and 2015 to record the lease agreement and any expenses to be considered with the lease. Clayton Company's annual accounting period ends on December 31 and use reversing entries if required.

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    Solution Summary

    Your tutorial is attached and shows you how to find the PV of the minimum lease payments with a required salvage, shows the amortization schedule and show the journal entries and reversing entries for interest, executory costs, and depreciation.