Monk Company a dealer in machinery and equipment

leased equipment
Monk Company a dealer in machinery and equipment leased equipment

Monk Company, a dealer in machinery and equipment, leased equipment with a 10-year life
to Leland Inc. on July 1, 2017. The lease is appropriately accounted for as a sale by Monk and
as a purchase by Leland. The lease is for an eight-year period, expiring June 30, 2025. The first
of eight equal payments of $300,000 is due on June 30, 2018. Leland has an option to purchase
the equipment on June 30, 2025, for $100,000 even though the expected residual value at that
time is $600,000. Leland's incremental borrowing rate is 7%, and it uses straightline
depreciation. The equipment is expected to have a salvage value of zero at June 30, 2027.
Required:
1. At what amount should Leland record the leased equipment on July 1, 2017?
2. Prepare Leland's amortization table for the leased equipment.
3. What is the amount of depreciation and interest expense that Leland should record for the
year ended December 31, 2017, and for the year ended December 31, 2018?
4. Answer questions 1-3, except that the payments are made at the beginning of the period
(July 1, 2017) instead of the end of the rental period (June 30, 2018).

Monk Company a dealer in machinery and equipment leased equipment

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