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    Avery Accessories, Inc. Leases

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    On January 1, 201x, Avery Accessories, Inc. entered into a 4 year, non-cancelable lease
    for a fleet of automobiles. The economic life of the vehicles are 4 years, and title transfers
    at the end of the leasing period, with bargain purchase price of $75,000. The lease calls
    annual payments of $150,000, beginning with the signing of the lease, and at the
    beginning of the next three years. The bargain purchase price will be paid at the end of
    the fourth year. The borrowing rate for Avery is 8%.

    Required: 1) Prepare, in good form, a "Schedule of Lease Payments" (Note, be sure to
    round off the past payment to reflect the balance due on the lease as $ 0)

    2) Prepare the journal entries to record the acquisition of the leased property.

    3) Prepare the journal entries to record the lease payments for years one and
    Two, as well as the lease amortization. Use the straight-line method.

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    Response for Avery Associates Leased Automobiles.

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    Solution Summary

    Your response is in Excel and shows an amortization schedule (with final payment adjusted for rounding due to using tables to arrive at present value of payments). The journal entries for the initial purchase and years 2 and 3 are shown as well as the annual entry for amortization of leased automobiles.