Mid-South Auto Leasing leases
Mid-South Auto Leasing leases vehicles to consumers. Theattraction to customers is that the company can offer competitiveprices due to volume buying and requires an interest rate implicitin the lease that is one percent below alternate methods offinancing. On September 30, 2021, the company leased a deliverytruck to a local florist, Anything Grows. The fiscal year for bothcompanies ends December 31.The lease agreement specified quarterly payments of $6,000beginning September 30, 2021, the beginning of the lease, and eachquarter (December 31, March 31, and June 30) through June 30, 2024(three-year lease term). The florist had the option to purchase thetruck on September 29, 2023, for $12,000 when it was expected tohave a residual value of $13,000. The estimated useful life of thetruck is four years. Mid-South Auto Leasing’s quarterly interestrate for determining payments was 3% (approximately 12% annually).Mid-South paid $46,000 for the truck. Both companies usestraight-line depreciation or amortization. Anything Grows’incremental interest rate is 12%.Hint: A lease term ends for accounting purposes when anoption becomes exercisable if it’s expected to be exercised (i.e.,a BPO). (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 andPVAD of $1) (Use appropriate factor(s) from the tablesprovided.)Required:1. Calculate the amount of selling profit thatMid-South would recognize in this sales-type lease. (Be careful tonote that, although payments occur on the last calendar day of eachquarter, since the first payment was at the beginning of the lease,payments represent an annuity due.)2. Prepare the appropriate entries for AnythingGrows and Mid-South on September 30, 2021.3. Prepare an amortization schedule(s) describingthe pattern of interest expense for Anything Grows and interestrevenue for Mid-South Auto Leasing over the lease term.4. Prepare the appropriate entries for AnythingGrows and Mid-South Auto Leasing on December 31, 2021.5. Prepare the appropriate entries for AnythingGrows and Mid-South on September 29, 2023, assuming the purchaseoption was exercised on that date.
Answer:
Ans 1
PV(3%,8,,12000)= hoe to derived above $9473
Ans 2
Ans 3
aNS 4
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