104 Chapter 21 10-Point Quiz Due Date: Friday, April 29th On January 1, 2020 the Big John's Heavy Equipment Dealership leased a 10 Ton Road Grader to Andy's Asphalt Paving Company. The term of the lease is 5 years with no renewal option, and because grader has an economic life of 5 years, it is estimated to have a zero residual value and will revert back to Big John's at the conclusion of the lease. The fair value of the 10 Ton Grader is $425,000 and cost Big John's Heavy Equipment Dealership $240,000. Big John set the annual lease payment to provide a 10% return. The lease requires annual payments of $101,921.89 due at the beginning of each year, with the first payment due at the signing of the lease on January 1, 2020. Andy's Asphalt Company's incremental borrowing rate is 10%, and they depreciate all equipment on a straight-line basis. Required: Prepare all journal entries needed for the year 2020 for both Big John's Heavy Equipment Dealership and also Andy's Asphalt Paving Company. Note: Both companies operate on a calendar year basis, therefore, their yearend is December 31st Hint: For Big John, the lease is to be accounted for as a Sales Type Lease. For Andy, the lease is to be accounted for as a Capital lease. Remember: you are doing all journal entries required for the year 2020 for both Big John and Andy