Lessee’s Amortization Schedule

Effective Decrease Outstanding Dec. Payments Interest in Balance Balance 31 9% x Outstanding Balance

39,564

2011 10,000 10,000 29,564

2012 10,000 .09 (29,564) = 2,661 7,339 22,225

2013 10,000 .09 (22,225) = 2,000 8,000 14,225

2014 10,000 .09 (14,225) = 1,280 8,720 5,505

2015 6,000 .09 (5,505) = 495 5,505 0

46,000 6,436 39,564

Requirement 8

Lessor’s Amortization Schedule

Effective Decrease Outstanding Dec. Payments Interest in Balance Balance 31 10% x Outstanding Balance

45,114

2011 10,000 10,000 35,114

2012 10,000 .10 (35,114) = 3,511 6,489 28,625

2013 10,000 .10 (28,625) = 2,863 7,137 21,488

2014 10,000 .10 (21,488) = 2,149 7,851 13,637

2015 15,000 .10 (13,637) = 1,363* 13,637 0

55,000 9,886 45,114

* adjusted for rounding of other numbers in the schedule

Problem 15-16 (continued)

Requirement 9

December 31, 2012

Yard Art Landscaping (Lessee) Maintenance expense (2012 fee) 1,000 Prepaid maintenance expense (paid in 2011) 1,000 Interest expense(9% x [$39,564 – 10,000]) 2,661 Lease payable (difference) 7,339 Prepaid maintenance expense (2013 fee) 1,000 Cash(lease payment) 11,000 Depreciation expense ([$39,564 – 6,000] ÷ 4 years) 8,391 Accumulated depreciation 8,391 Branch Motors (Lessor) Cash(lease payment) 11,000 Maintenance fee payable [or prepaid maintenance*] 1,000 Lease receivable (payment less executory costs) 6,489 Interest revenue(10% x [$45,114 – 10,000]) 3,511

* If paid previously.

Problem 15-16 (continued)

Requirement 10

December 31, 2014

Yard Art Landscaping (Lessee) Maintenance expense (2014 fee) 1,000 Prepaid maintenance expense (paid in 2013) 1,000 Interest expense(9% x $14,225: from schedule) 1,280 Lease payable (difference: from schedule) 8,720 Prepaid maintenance expense (2015 fee) 1,000 Cash(lease payment) 11,000 Depreciation expense ([$39,564 – 6,000] ÷ 4 years) 8,391 Accumulated depreciation 8,391 Branch Motors (Lessor) Cash(lease payment) 11,000 Maintenance fee payable [or prepaid maintenance*] 1,000 Lease receivable (payment less executory costs) 7,851 Interest revenue(10% x $21,488: from schedule) 2,149

* If paid previously.

Problem 15-16 (concluded)

Requirement 11

December 31, 2015

Yard Art Landscaping (Lessee) Maintenance expense (2015 fee) 1,000 Prepaid maintenance expense (paid in 2014) 1,000 Depreciation expense ([$39,564 – 6,000] ÷ 4 years) 8,391 Accumulated depreciation 8,391 Interest expense(9% x $5,505 : from schedule) 495 Lease payable (difference : from schedule) 5,505 Accumulated depreciation (account balance) 33,564 Loss on residual value guarantee($6,000 – 4,000) 2,000 Leased equipment(account balance) 39,564 Cash($6,000 – 4,000) 2,000 Branch Motors (Lessor) Inventory of equipment(actual residual value) 4,000 Cash ($11,000 – $4,000) 7,000* Loss on leased assets ($15,000 – $11,000) 4,000 Lease receivable (account balance) 13,637 Interest revenue(10% x $13,637: from schedule) 1,363 * $2,000 from lessee and $5,000 from third-party guarantor

Problem 15-17

Calculation of interest expense for the year ended December 31, 2011

Bonds payable $91,421 [1]

Notes payable 49,500 [2]

Capital lease 9,947 [3]

Total interest expense $150,868

[1] $1,828,411 x 10% x ½ = $91,421

Interest $90,000^¥ x 17.1591 * = $1,544,319 Principal $2,000,000 x 0.142046 ** 284,092 Present value (price) of the note $1,828,411

^¥ 9% x ½ x $2,000,000

^* present value of an ordinary annuity of $1: n=40, i=5%

^** present value of $1: n=40, i=5%

[2] June 30: $500,000 x 10% x ½ = $25,000

Dec. 31: ($500,000 – [$60,000 – 25,000 – 25,000]) x 10% x ½ = 24,500

2011 interest $49,500

Relevant journal entries:

December 31, 2010

Interest expense($500,000 x 10% x ½) 25,000 Interest payable 25,000

June 30, 2011

Interest expense($500,000 x 10% x ½) 25,000

Interest payable (from adjusting entry) 25,000

Note payable (difference) 10,000

Cash(annual payment) 60,000

December 31, 2011

Interest expense([$500,000 – 10,000] x 10% x ½) 24,500 Interest payable 24,500

Problem 15-17 (concluded)

[3] 10% x $99,474 ($139,474* – 40,000) = $9,947

* $40,000 x 3.48685^** = $139,474

lease present payment value

^** present value of an annuity due of $1: n=4, i=10%

Problem 15-18

Requirement 1