2. On January 1, 2022, ABC Lessee leased equipment from Stars Manufacturing Lessor at a price of $159,092. Stars Manufacturing Lessor manufactured the equipment at a cost of $100,000. The lease agreement specifies 5 annual payments beginning January 1st 2022, the inception of the lease, and on each January 1s thereafter through 2026. The 5 year lease term ends on December 31, 2026. Stars Manufacturing Lessor estimates the useful life of the equipment to be 6 years. Stars Manufacturing Lessor estimates the residual value to be $12,000, and the Lessor requires the Lessee to guarantee the residual value at the end of the lease term. ABC Lessee agrees that the equipment will be worth at least $12,000 or more at the end of the lease term. The lease does not contain a renewal or purchase option, and the equipment reverts to the Lessor at the end of the 5 year period. Stars Manufacturing Lessor routinely leases its inventory to customers. The implicit interest in their contracts is 8%, and ABC Lessee is aware of this rate. ABC Lessee depreciates assets using the Straight-Line method for Depreciation. a a. How will the lease be classified by the Lessor and Lessee? b. What will be the Annual Lease Payment that Stars Manufacturing Lessor will require from ABC Lessee to earn a return of 8% on this lease agreement? For Stars Manufacturing Lessor c. What is the Fair Value of the lease contract (PV of lease payments) that Stars Manufacturing Lessor will record on their Balance Sheet as a Lease Receivable? d. For Stars Manufacturing Lessor, prepare an amortization schedule using the effective interest method over the term of the lease. e. Prepare journal entries for Stars Manufacturing Lessor on the following dates: January 1, 2022 December 31, 2022 January 1, 2023 End of Lease: December 31, 2023 December 31, 2026 January 1, 2024 January 1, 2027 2. On January 1, 2022, ABC Lessee leased equipment from Stars Manufacturing Lessor at a price of $159,092. Stars Manufacturing Lessor manufactured the equipment at a cost of $100,000. The lease agreement specifies 5 annual payments beginning January 1st 2022, the inception of the lease, and on each January 1s thereafter through 2026. The 5 year lease term ends on December 31, 2026. Stars Manufacturing Lessor estimates the useful life of the equipment to be 6 years. Stars Manufacturing Lessor estimates the residual value to be $12,000, and the Lessor requires the Lessee to guarantee the residual value at the end of the lease term. ABC Lessee agrees that the equipment will be worth at least $12,000 or more at the end of the lease term. The lease does not contain a renewal or purchase option, and the equipment reverts to the Lessor at the end of the 5 year period. Stars Manufacturing Lessor routinely leases its inventory to customers. The implicit interest in their contracts is 8%, and ABC Lessee is aware of this rate. ABC Lessee depreciates assets using the Straight-Line method for Depreciation. a a. How will the lease be classified by the Lessor and Lessee? b. What will be the Annual Lease Payment that Stars Manufacturing Lessor will require from ABC Lessee to earn a return of 8% on this lease agreement? For Stars Manufacturing Lessor c. What is the Fair Value of the lease contract (PV of lease payments) that Stars Manufacturing Lessor will record on their Balance Sheet as a Lease Receivable? d. For Stars Manufacturing Lessor, prepare an amortization schedule using the effective interest method over the term of the lease. e. Prepare journal entries for Stars Manufacturing Lessor on the following dates: January 1, 2022 December 31, 2022 January 1, 2023 End of Lease: December 31, 2023 December 31, 2026 January 1, 2024 January 1, 2027
