Jain Corp. has negotiated a lease for new machinery. Jain Corp. is excited about the new products it will be able to produce with this machinery at gross margins much higher than historical levels. The machinery has a fair value of $412,500 and an expected economic life of seven years. The lease has a five-year term. Annual rent is paid at the beginning of the lease year, in the amount of $78,225. Insurance and operating costs, approximately $15,000, are paid directly by Jain and are not included in the lease payments. At the end of the lease term, the machinery will revert to the lessor, and the lessor will sell it for an expected $56,250. If the lessor does not realize $56,250 on the sale, then Jain has agreed to make up the difference. Jain does not know the lessor’s implicit interest rate. The lease stipulates an early termination option whereby the lessee may cancel the lease after the second year for a fee of $10,000.

Required:
1. Prepare a lease liability amortization table for the lease. Jain’s IBR is 10%.
2. Assume that the lease was entered into on 1 January 20X2. Jain has a 31 December fiscal year-end. Prepare journal entries for the lease for 20X2, including depreciation.
3. Assume that at the end of the lease, the lessor is able to sell the asset for $45,000 and that Jain makes up the shortfall. Prepare Jain’s entry to record the lease termination (after first recording interest to the date of the transaction).