ACTG 4650 Assignment 8 Due April 18 Company A leased new equipment from Lessor Corp. on January 1, 2017, for a period of three years. Lease payments of $100,000 are due to Lessor Corp each year with the first payment due on January 1, 2017. The annual lease payment includes $2,000 per year designated to cover maintenance costs associated with the equipment. The lease contains no purchase or renewal options and the equipment reverts to Lessor Corp. on the expiration of the lease. The remaining useful life of the equipment is four years. The fair value of the equipment at lease inception is $265,000. Company A has guaranteed 20,000 as the residual value at the end of the lease term. The $20,000 represents the expected value of the leased equipment to the lessee at the end of the lease term. The salvage value of the equipment is expected to be $2,000 after the end of its economic life. The lessee's incremental borrowing rate is 11 percent (Lessor's implicit rate is 10 percent and is calculable by the lessee from the lease agreement). Company A has not elected to early adopt ASC 842 to account for any of their leases. The assistant controller of Company A analyzed the assets under lease determined whether the lease was an operating lease or capital lease, and prepared the applicable journal entries. The controller of Company A reviewed the assistant controller's analysis and prepared a separate analysis. As the CFO, you were given both analysis to determine the correct accounting treatment. Calculations and journal entries performed by the assistant controller and controller are below. Assistant controller analysis: Since the equipment reverts to Lessor Corp., it is an operating lease Entries to be posted in Years 1, 2, and 3