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1) The normal selling price of the jousting equipment is $325000 and the cost of the asset to Kingdom Leasing Inc. was $250000.
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2) Knight will pay all maintenance, insurance and taxes costs directly and annual payments of $60000 on Jan 1 each year.
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3) The lease begins on Jan 1, 2012 and payments will be in equal annual installments.
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4) The lease is noncancelable with no renewal option. The lease term is 10 years (the same as the estimated economic life).
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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%.
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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.
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Required:
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a) Determine what type of lease this would be for the lessor and calculate the following: (show all work)
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Lease Receivable
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Sales Price
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Cost of Sales
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b) Prepare Kingdom's amortization schedule for the lease terms.
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c) Prepare all the journal entries for Kingdom for 2012. Assume a calendar year fiscal year.
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