The following facts pertain to a non-cancelable lease agreement between Faldo Leasing and Vance plc, a lessee.

Commencement date January 1, 2019

Annual lease payment due at the beginning of each year, beginning with 

January 1, 2019........................................................................................................................£113,864

Residual value of equipment at end of lease term, guaranteed by the lessee..................£50,000

Expected residual value of equipment at end of lease term................................................£45,000

Lease term..................................................................................................................................6 years

Economic life of leased equipment.........................................................................................6 years

Fair value of asset at January 1, 2019...................................................................................£600,000

Lessor's implicit rate..........................................................................................................................8%

Lessee's incremental borrowing rate..............................................................................................8%

The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment.

Instructions

a. Prepare an amortization schedule that would be suitable for the lessee for the lease term.

b. Prepare all of the journal entries for the lessee for 2019 and 2020 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee's annual accounting period ends on December 31.

c. Suppose Vance received a lease incentive of £5,000 from Faldo Leasing to enter the lease. How would the initial measurement of the lease liability and right-of-use asset be affected? What if Vance prepaid rent of £5,000 to Faldo?