Accounting for lease by lessor and lessee. IBM manufactures a particular computer for \(\$ 6,000\) and sells it for \(\$ 10,000\). Adair Corporation needs this computer in its operations and contemplates three ways of acquiring it on January 1, Year 11. The computer has a three-year estimated useful life and zero salvage value. Both firms use the straight-line depreciation method.

(1) Outright Purchase: Adair Corporation will borrow \(\$ 10,000\) from its bank and purchase the computer from IBM. The bank loan bears interest at 8 percent annually and requires payments of \(\$ 3,880\), which includes principal and interest, on December 31 of Year 11, Year 12, and Year 13.

(2) Operating Lease: Adair Corporation will lease the computer from IBM and account for it as an operating lease. IBM sets the annual payment due on December 31, Year 11, Year 12, and Year 13 at \(\$ 3,810\).

(3) Capital Lease: Adair Corporation will lease the computer from IBM and account for it as a capital lease. The annual payment due on December 31 of Year 11, Year 12, and Year 13 is \(\$ 3,810\).

a. Give the journal entries on the books of Adair Corporation on January 1, Year 11, December 31, Year 11, and December 31, Year 12 related to the loan and acquisition of the equipment assuming the outright purchase alternative.

b. Repeat part a assuming the operating lease alternative.

c. Repeat part a assuming the capital lease alternative.

d. Give the journal entries on the books of IBM on January 1, Year 11, December 31, Year 11, and December 31, Year 12 related to the sale of the equipment assuming the outright sale alternative.

e. Repeat part d assuming the operating lease alternative.

f. Repeat part d assuming the capital lease alternative.

g. Prepare a schedule of the total expenses incurred by Adair Corporation for Year 11, Year 12, and Year 13 under each of the three alternatives.
h. Prepare a schedule of the total revenues and total expenses recognized by IBM for Year 11, Year 12, and Year 13 under each of the three alternatives.