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IIIC juuli CITS TUI e Tussu TOP 2020 and 2021 lo record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee's annual accounting period ends on December 31. c. Suppose Vance received & lease incentive of $5,000 from Faldo Leasing to enter the lease. How would the initial measurement of the lease liability and right-of-use asset be affected? What if Vance prepaid rent of $5,000 to Faldo? P21.2 (LO 2,4) (Lessee Entries and Balance Sheet Presentation, Finance Lease) On January 1. 2020, Cage Company contracts to lease equipment for 5 years, agreeing to make a payment of $120.987 at the beginning of each year, starting January 1, 2020. The leased equipment is to be capitalized at $550,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Cage's incremental borrowing rate is 6%, and the implicit rate in the lease is 5%, which is known by Cage. Title to the equipment transfers to Cage at the end of the lease. The asset has an estimated useful life of 5 years and no residual value. Instructions a. Explain the probable relationship of the $550,000 amount to the lease arrangement. b. Prepare the journal entry or entries that Cage should record on January 1, 2020, Prepare the journal entries to record amortization of the leased asset and interest expense for the d. Prepare the journal entry to record the lease payment of January 1, 2021, assuming reversing entries are not made. e. What amounts will appear on the lessee's December 31, 2020, balance sheet relative to the lease contract? 1. How would the value of the lease liability in part b change if Cage also agreed to pay the fixed annual insurance on the equipment of $2,000 at the same time as the rental payments? P21.3 (LO 2, 4) Groupwork (Lessee Entries and Balance Sheet Presentation, Finance Lease) Ludwick Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $40,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 6: Ludwick's incremental borrowing rate is 8%. Ludwick is unaware of the rate being used by the lessor. At the end of the lease, Ludwick has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Ludwick uses the straight-line method of depreciation on similar owned equipment. Instru 1.584 + c. year 2020. 11