all informations are on the question. look at 9

ple 6: Lessee/Lessor Example (from p21-11) - lease with residual values Les On 1/1/17, King Finance Company leased milking equipment to Goring Dairy. The following information pertains to the lease agreement: 1. The terms of the non-cancelable lease are 10 years with no renewal option. At the termination of the lease, the equipment reverts back to the lessor. 2. Equal rental payments of $30,300 are due at the beginning of each year starting 1/1/17. 3. The equipment is not of a specialized use. 4. The cost of the asset to the lessor is $180,000. The fair value of the asset at 1/1/17 is $242,741. 5. The equipment has an economic life of 15 years. 6. The equipment has an expected residual value of $45,000, though Goring Dairy has guaranteed a residual value of $50,000 to King Finance. 50000 746000 7. Goring Dairy depreciates all of its equipment on a straight-line basis. 8. The agreement requires equal annual rental payments, starting 1/1/17. 9. Goring Dairy's incremental borrowing rate is 8% per year. The implicit rate is also 8%. 10. Collectability of the lease payments is probable. Both lessor and lessee's accounting periods end on December 31. a. Discuss the nature of this lease to King Finance Co. and Goring Dairy. 10/15 Ylones 60%. 21958L 1. Transfer of ownership 2. Purchase option (at end of lease term for =75% of its economic life (includes bargain renewal period if one exists) 4. If PV of lease payments >= 90% of FMV of asset at inception of lease. (For lessee, in payment, include guaranteed residual value and cost of bargain purchase option; For lessor, in payment, include guaranteed residual value and cost of bargain purchase option; include only executory costs that are part of fixed lease payment (i.e. insurance). Discount rate is lessor's implicit rate. 5. Alternative Use Test H 70844 Z4042 /242741 ERV=45000 GRr= 50000 PVERV= 20844 DY GRY: 23160 1241 40 378 18.1. UN 292761 96200 20300 Example 6 (cntd.) b. Prepare the necessary journal entries for Goring Dairy (lessee) for 2017. 1/1/17: leared Equipment, 242741 heared Liability 242741 Ceared Lahility 30300 Cash 20,00 12/31/17: I LE - Ill Repreciation ACC 16995 16995 12849 12849 Example 6 (cntd.) c. Prepare the necessary journal entries for King Finance Co. for 2017. 1/1/17: reased COGS Liability. Zazzar. (80odo sale. Inventory 242741 180000 12/31/17: 16995 Ilrea Il Revenem 16995 Example 6 (cntd.) d. What would Goring Dairy report as a lease liability if the residual value of $50,000 had not been guaranteed at all? e. What would King Finance report as a lease receivable if the residual value of $50,000 had not been guaranteed at all