1. Capitalization Criteria (Lessee) Describe the accounting criteria for capitalizing a lease by a lessee.

2. Lessee Accounting Show all computations; Label work including dates.

The following facts pertain to a non-cancelable lease agreement between Jameson Leasing Company and Axel Company, a lessee.

Inception date: May 1, 2013

Annual lease payment due at the beginning of each year, beginning with May 1, 2013 $18,218.66

Bargain purchase option price at end of lease term $3,780

Lease term 5 years Economic life of Leased Equipment under Capital Leases

10 years Lessor's cost $60,700

Fair value of asset at May 1, 2013 $75,700.00

Lessor's implicit rate 12% Lessee's incremental borrowing rate 12%

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.

PV of annuity due = 4.03735

PV of $1 = 0.56743

a) What is the nature of this lease for Axel Company? Why?

b) What is the nature of this lease for Jameson Company? Why?

c) Prepare a lease amortization schedule for Axel Company for the 5 year 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 first year