1. Bulldog Company leased a machine from Basket Leasing Company. The lease is for 4 years. The life of the asset is 5 years. The terms of the lease require 4 payments of $100,000 at the beginning of the year, beginning on January 1, 2017. The lease is non-cancelable. Bulldogs incremental borrowing rate is 8%. Baskets earnings rate is 6%, but Bulldog does not know Baskets rate. There is an unguaranteed residual value of $15,000 at the end of year 4. At the end of year 4, the equipment is worth $12,000. Bulldog also assumes property tax expense of $1,000 per year. The lease is a direct financing lease.

On the books of Basket,

a. Prepare an amortization schedule for the lease receivable.

b. Record the inception of the lease and receipt of the first payment on January 1, 2017.

c. Record the last payment in year 4 and the return of the equipment.