4. Cristal Leasing Company signs a lease agreement on January 1, 2017, to lease electronic equipment to Jordan Company. The term of the noncancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement: 1. Jordan Company has the option to purchase the equipment for $16,000 upon termination of the lease. 2. The equipment has a cost and fair value of $160,000 to Cristal Leasing Company. The useful economic life is 2 years, with a salvage value of $16,000. 3. Jordan Company is required to pay $5,000 each year to the lessor for executory costs. 4. Cristal Leasing Company desires to earn a return of 10% on its investment. 5. Collectibility of the payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. (a) Prepare the journal entries on the books of Cristal Leasing to reflect the payments received under the lease and to recognize income for the years 2017 and 2018. (b) Assuming that Jordan Company exercises its option to purchase the equipment on December 31, 2018, prepare the journal entry to reflect the sale on Cristal's books. 5. Montreal Leasing Company leases a new machine that has a cost and fair value of $95,000 to Stone Corporation on a 3-year noncancelable contract. Stone Corporation agrees to assume all risks of normal ownership including such costs as insurance, taxes, and maintenance. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2017. Montreal Leasing Company expects to earn a 9% return on its investment. The annual rentals are payable on each December 31. (a) Discuss the nature of the lease arrangement and the accounting method that each party to the lease should apply. (b) Prepare an amortization schedule that would be suitable for both the lessor and the 4. Cristal Leasing Company signs a lease agreement on January 1, 2017, to lease electronic equipment to Jordan Company. The term of the noncancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement: 1. Jordan Company has the option to purchase the equipment for $16,000 upon termination of the lease. 2. The equipment has a cost and fair value of $160,000 to Cristal Leasing Company. The useful economic life is 2 years, with a salvage value of $16,000. 3. Jordan Company is required to pay $5,000 each year to the lessor for executory costs. 4. Cristal Leasing Company desires to earn a return of 10% on its investment. 5. Collectibility of the payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. (a) Prepare the journal entries on the books of Cristal Leasing to reflect the payments received under the lease and to recognize income for the years 2017 and 2018. (b) Assuming that Jordan Company exercises its option to purchase the equipment on December 31, 2018, prepare the journal entry to reflect the sale on Cristal's books. 5. Montreal Leasing Company leases a new machine that has a cost and fair value of $95,000 to Stone Corporation on a 3-year noncancelable contract. Stone Corporation agrees to assume all risks of normal ownership including such costs as insurance, taxes, and maintenance. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2017. Montreal Leasing Company expects to earn a 9% return on its investment. The annual rentals are payable on each December 31. (a) Discuss the nature of the lease arrangement and the accounting method that each party to the lease should apply. (b) Prepare an amortization schedule that would be suitable for both the lessor and the
