Question

The lease term is for 2 years with no renewal optionsoffered.

Monthly lease payments are $350 and are made at the beginning ofeach month.

Madison depreciates its long-lived assets on a straight-linebasis, and it estimates that the truck’s economic life is 7years.

Madison does not have an option to purchase the truck nor doesownership transfer to Madison at the end of the lease.

At inception of the lease, similar trucks had a normal salesprice of $20,000.

Madison has an incremental borrowing rate of 14%, and Madison isaware that Mendota set monthly payments to ensure a 12% rate ofreturn.

Based on current GAAP standards, Madison is accounting for thelease as an operating lease.

Calculate the journal entries for the inception of thelease and all subsequent months including an amortizationschedule.

I need assistance with figuring the present value of therental income for the 2 years and the amortizationschedule.