1.Use the following information for problems 1, 2 and 3.

On January 1, 2019, Rouse Company entered a lease agreement to lease non-specialized equipment for 5 years to Tyner Company, the leasee.The following information pertains to the lease agreement.

Payments of $30,000 to be paid at the beginning of the period each year, beginning January 1.

The fair value of the asset on the date of the lease agreement is $150,000.

The cost of the equipment to Rouse was $120,000.

The life of the asset is 10 years.

Residual value at the end of 5years is $35,000.Tyner does not guarantee the residual value of the equipment at the end of the lease term.

The implicit interest rate known by both parties is 9%.

The lease term is 5 years.

Both parties use the straight-line method to depreciate equipment of this type.

Present value table information is as follows:

Present value of 1

n 8.0% 9.0% 10.0%

5 0.680583 0.649931 0.620921

Present value of ordinary annuity

n 8.0% 9.0% 10.0%

5 3.992710 3.889651 3.790787

Present value of annuity due

n 8.0% 9.0% 10.0%

5 4.312127 4.239720 4.169865

Problem 1:

• Work through each of the Lease Criteria met (YES) or not met (NO) found on the Excel Template File.
• What type of lease is this for Tyner and for Rouse?
• Prepare all journal entries for Tyner Company for 2019 associated with this lease.
• Show how Tyner would report the lease liability on the balance sheet for 12/31/2019?
• What expense amount and type would Tyner report on the income statement for 12/31/2019?
• What would be the revenue recognized by Rouse, if any, on their 12/31/2019 income statement?
• What would be the depreciation expense, if any, associated with this lease that Rouse would report on their 12/31/2019 income statement.

Problem 2:

Assume the residual value is guaranteed by Tyner, and Tyner believes the probable payment under this guarantee is $35,000.

• Work through and answer each of the Lease Criteria met (YES) or not met (NO) found on the Excel Template File.
• What type of lease is this for Tyner and for Rouse?
• Prepare journal entries for Tyner Company for 2019 and 2020.
• Show how Tyner would report the lease liability on the December 31 balance sheet for 2019 and 2020?
• What amounts and type would be reported on the December 31, 2019 and 2020 income statement by Tyner?

Problem 3:

Assume the same facts as Problem 2 above (the guarantee of residual value and payment by Tyner) but work the following for Rouse Company.

• Prepare journal entries for Rouse Company for 2019 and 2020.
• Show how the lease receivable would be reported on the December 31 balance sheet for 2019 and 2020?
• What would Rouse report on the December 31 income statement for 2019 and 2020 with respect to the lease?