29 Jun Minimum Lease Payments Receivable……….
Question
12. On January 1, 20X7, Parent Company acquired 100% of the common stock of Subsidiary Company for $365,000. On this date, Subsidiary had common stock, other paid in capital, and retained earnings of $50,000, $100,000, and $200,000 respectively.
In 20X7, 20X8, and 20X9, Parent has accounted for the Investment in Subsidiary using the simple equity method.
On January 1, 20X8, Parent purchased equipment for $174,120 and immediately leased the equipment to Subsidiary on a 4-year lease. The transaction was legally structured as a sales-type lease with a present value for the minimum lease payments of $204,120. Parent recorded the following entry:
Minimum Lease Payments Receivable……….
$240,000
Unearned Interest Income……………..
$ 35,880
Equipment…………………………..
174,120
Sales Profit on Lease………………..
30,000
The minimum lease payments of $60,000 are to be made annually on January 1, beginning immediately, for a total of 4 payments. The implicit interest rate is 12%. The lease provides for an automatic transfer of title at the end of 4 years. The estimated useful life of the equipment is 6 years. The lease has been capitalized by both companies.
A lease amortization schedule, applicable to either company, is presented below:
Carrying
Carrying
Interest
Interest
Payment
Principal
Value on
Value
Rate
Reduction
1-1-X8
$204,120
1-1-X8
– 60,000
12%
$17,294
$60,000
$42,706
144,120
1-1-X9
– 42,706
12%
12,170
60,000
47,830
101,414
1-1-Y0
– 47,830
12%
6,416*
60,000
53,584
53,584
1-1-Y1
– 53,584
*Adjusted for rounding error.
$
0
========
Required:
Complete the Figure 5-11 worksheet for consolidated financial statements for the year ended December 31, 20X8. Round all computations to the nearest dollar.
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