$($a$)$ The issue of how to report lease is the classic case of substance versus form. Although legal title does not technically pass in lease transactions, the benefits of the property do transfer. In light with this, explain the conceptual nature of a lease.

$($b$)$ Morgan leasing company signs an agreement on January $1,2014,$ to lease equipment to Cole Company. The following information relates to this agreement.

$1.$ The term of non$-$cancelable lease is $5$ years with no renewal option. The equipment has an estimates economic life of $5$ years

$2.$ The cost of the asset to the lessor is Tk$\mathrm{.}245\mathrm{.}000.$ The fair value of the asset at January

$2014,$ is Tk$.245,000.$

$3.$ The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of Tk$.42,000,$ which is guaranteed.

$4.$ Cole Company assumes direct responsibility for all executor costs, which include the following annual amounts: $(1)$ Tk$.700$ to

Rocky Mountain Insurance Company for

insurance and $(2)$ Tk$.1,200$ to Laclede County for property taxes.

$5.$ The agreement requires equal annual rental payments beginning on January $1,2014.$

$6.$ The lessee's incremental borrowing rate is $12\%.$ The lessor's implicit rate is $10\%$ and is not known to the lessee.

$7.$ Cole Company uses the straight line depreciation method for all equipment.

$8.$ Collectability of the lease payments is reasonably predictable. There are no important uncertainties surrounding the amount of costs yet to be incurred by the lessor.

Required:

Calculate the amount of the annual rental payment.

Prepare an amortization schedule that would be suitable for the lessee for the lease

ili.

Prepare all of the journal entries for the lessee for $2014$ and $2015$ to record the lease agreement, the lease payments, all expenses, and balance sheet representation related to this lease. Assume the lessee's annual accounting period ends. on

December $31.$