Adden Company signs a lease agreement dated January 1, 2019, that provides for it to lease non-specialized heavy equipment from Scott Rental Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows:

1.	The lease term is 4 years. The lease is noncancelable and requires annual rental payments of $20,000 to be paid in advance at the beginning of each year.
2.	The cost, and also fair value, of the heavy equipment to Scott at the inception of the lease is $68,036.62. The equipment has an estimated life of 4 years and has a zero estimated residual value at the end of this time.
3.	Adden agrees to pay all executory costs directly to a third party.
4.	The lease contains no renewal or bargain purchase options.
5.	Scott’s interest rate implicit in the lease is 12%. Adden is aware of this rate, which is equal to its borrowing rate.
6.	Adden uses the straight-line method to record depreciation on similar equipment.
7.	Executory costs paid at the end of the year by Adden are:

2019	2020
Insurance, $1,500	Insurance, $1,300
Property taxes, $5,500	Property taxes, $6,000

Required:

1.	Next Level Determine what type of lease this is for Adden.
2.	Prepare a table summarizing the lease payments and interest expense for Adden.
3.	Prepare journal entries for Adden for the years 2019 and 2020.

CHART OF ACCOUNTSAdden CompanyGeneral Ledger

	ASSETS
111	Cash
121	Accounts Receivable
141	Inventory
152	Prepaid Insurance
181	Equipment
189	Accumulated Depreciation
190	Right-of-Use Asset

	LIABILITIES
211	Accounts Payable
231	Salaries Payable
253	Lease Liability
261	Income Taxes Payable

	EQUITY
311	Common Stock
331	Retained Earnings

	REVENUE
411	Sales Revenue

	EXPENSES
500	Cost of Goods Sold
511	Insurance Expense
512	Utilities Expense
513	Lease Expense
515	Amortization Expense
516	Property Tax Expense
521	Salaries Expense
532	Bad Debt Expense
540	Interest Expense
541	Depreciation Expense
559	Miscellaneous Expenses
910	Income Tax Expense

1. Determine what type of lease this is for Adden.

A. Finance Lease

B. Operating Lease

2. Prepare a table summarizing the lease payments and interest expenses for Adden.

Additional Instructions

Adden Company

Summary of Lease Payments and Interest Expense

1	Date	Annual Lease Payment	Interest at 12% on Unpaid Liability	Balance of Lease Liability
2	January 1, 2019 : Before the initial payment
3	January 1, 2019
4	December 31, 2019
5	January 1, 2020
6	December 31, 2020
7	January 1, 2021
8	December 31, 2021
9	January 1, 2022

3a. Prepare journal entries for Adden for the year 2019.

General Journal Instructions

PAGE 1

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9
10
11

3b. Prepare journal entries for Adden for the year 2020.

General Journal Instructions

PAGE 1

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9