1. On January 1, 2019, Blue Co. leased a new machine from Green Co. The following information pertains to the lease:

Lease term		5	years
Annual rental payable at beginning of each year	$	55,000
Useful life of machine		7	years
Blues incremental borrowing rate		12	%
Implicit interest rate in lease (known by Blue)		10	%
Present value of annuity of $1 in advance for 5 periods at
10%		4.17
12%		4.04

As a result, Blue recorded a right-of-use asset in the amount of $229,500. The cost of the machine on Greens accounting records is $214,500. The leased asset would usually have a salvage value of $35,000 but it was customized for Blues use with no alternative use to Green at the end of the lease term. Blue will record amortization of the leased asset for 2019 of

a. $45,870 b. $32,764 c. $38,870 d. $27,764

2. Jarvis Company leased a new machine beginning on January 1, 2019. The lease, which has an implicit interest rate of 6%, is for 5 years and requires annual payments of $10,000 on each December 31. The 5-year lease term is considered a major part of the economic life of 6 years. The present value of an ordinary annuity of $1 at 6% for 5 periods is 4.212. Title to the machine remains with the lessor. The machine, which cost the lessor $30,000, has a useful life of 6 years and will be depreciated on a straight-line basis. What will be the carrying value of the machine at December 31, 2020?

a. $28,080 on the lessees books b, $25,272 on the lessees books c. $20,000 on the lessors books d. $18,000 on the lessors books