William Corp. (the lessee) leased equipment from Daniel Finance (the lessor), details of which are: 

■ Commencement date: January 1, 2019. 

■ Fair value of equipment: $150,000. 

■ Cost of equipment to William Corp.: $150,000. 

■ Term of lease: 6 years. 

■ Payments due: beginning of year commencing January 1, 2019. 

■ Purchase option: $40,000. 

■ Estimated value of asset at end of lease: $50,000. 

■ Required return by lessor exclusive of initial direct costs: 6%. 

■ Implicit rate used to determine lease payments: Lessee unable to readily determine. 

■ Incremental borrowing rate: 6%. 

■ Estimated economic life of equipment: 10 years. 

■ Estimated residual value: $0. 

■ Lessee’s initial direct costs: $3,000. 

■ Lessor’s initial direct costs: $4,000. 

■ Depreciation methods: Straight-line. 

■ Year ends: December 31.

Required: 

a. Evaluate how the lessor (Daniel Finance) should account for the lease transaction. 

b. Prepare a lease amortization schedule for this lease for Daniel Finance, the lessor. 

c. Prepare a lease amortization schedule for this lease for William Corp., the lessee. 

d. Prepare the journal entries on January 1, 2019, December 31, 2019, and January 1, 2020, for Daniel Finance, the lessor. 

e. Prepare the journal entries on January 1, 2019, December 31, 2019, and January 1, 2020, for William Corp., the lessee.