2. On 1/1/23, Lammer (Lessee) leased an asset from Koch (Lessor). Koch had purchased the asset at a total cost of $650,000. The asset has an estimated economic life of 10 years. The fair value of the asset, as determined by its cash sales price, is $650,000. The terms of the lease are for 5 years and require Lammer to make monthly payments. The first payment is due on 1/31/23 (ordinary annuity). Koch uses an implicit interest rate of 6%, which is known by Lammer. At the end of the lease term, the asset is expected to have a residual value of $150,000. Lammer has guaranteed this amount. Lammer and Koch both normally use the straight-line method of depreciation for all assets.

a. Should this lease be classified as a Sales-Type/Financing Lease or an Operating Lease? How do you know?

b. What is the present value of the expected residual value ($150,000) to Koch?

c. Given the present value of the expected residual value to Koch, what must be the present value of lease payments received by Koch, such that Koch receives total present value of $650,000?

d. Given the present value of lease payments required by Koch, calculate the amount of monthly payment Lammer will be required to make for each of 60 months.

e. Prepare an amortization table for Lammer (Lessee) and attach a copy to this test.

f. Explain why no amortization table is needed for Koch (Lessor)

g. Use the next page to prepare any journal entries required for Lammer (Lessee) and Koch (Lessor) at the following dates: i. 1/1/23 ii. 1/31/23

h. Use the next page to indicate any items (including $ amounts) that would be included on the 1/31/23 Balance Sheet of each Lammer (Lessee) and Koch (Lessor).

i. Use the next page to indicate any items (including $ amounts) that would be included on the January 2023 Income Statement of each Lammer (Lessee) and Koch (Lessor) Lammer (Lessee) Koch (Lessor) 1/1/23 Lammer (Lessee) Koch (Lessor) 1/31/23 Lammer (Lessee) Koch (Lessor) 1/31/23 Balance Sheet Items Lammer (Lessee) Koch (Lessor) January 2023 Income Statement Items