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2. Lessee enters into a four-year lease of equipment and concludes that the agreement is a finance lease because the lease contains an option for

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2. Lessee enters into a four-year lease of equipment and concludes that the agreement is a finance lease because the lease contains an option for Lessee to purchase the equipment at the end of the lease and the Lessee is reasonably certain to exercise that option. The arrangement provides the following: Lease term Four years, with the first payment due at lease commencement and the remainder annually at the lease anniversary date thereafter Annual payments, beginning at lease Commencement $50,000 commencement and annually Year 2 $53,000 thereafter Year 3 $55,000 Year 4 -- $60,000 Discount rate 4.5% PV of lease payments $204,577 Complete the following schedule to show the impact on the income statement and balance sheet. Initial ear 1 ear 2 ear 3 ear 4 Cash lease payments Income statement: Lease expense recognized: Interest expense Amortization expense Total periodic expense Balance sheet: ROU asset Lease liability D Prepare the journal entries at the time of the lease commencement and for Year 1 of the lease term

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