(Lessee Entries with Bargain Purchase Option) The following facts pertain to a noncancelable lease agreement between Mooney Leasing Company and Rode Company, a lessee.

The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs.
Instructions (Round all numbers to the nearest cent.)

(a) Discuss the nature of this lease to Rode Company.

(b) Discuss the nature of this lease to Mooney Company.

(c) Prepare a lease amortization schedule for Rode Company for the 5-year lease term.

(d) Prepare the journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2007 and 2008. Rode’s annual accounting period ends on December 31. Reversing entries are used by Rode.

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Inception date: Annual lease payment due at the beginning of each year, beginning with May 1, 2007 Bargain purchase option price at end of lease term Lease term Economic life of leased equipment Lessor's cost Fair value of asset at May 1, 2007 Lessor's implicit rate Lessee's incremental borrowing rate May 1, 2007 $21,227.65 $ 4,000.00 5 years 10 years $65,000.00 $91,000.00 10% 10%