(Amortization Schedule and Journal Entries for Lessee) Grady Leasing Company signs an agreement on January 1, 2010, to lease equipment to Azure Company. The following information relates to this agreement. The term of the noncancelable lease is 5 years with no renewal option. The equipment has an estimated economic life of 5 years. The fair value of the asset at January 1, 2010, is $90,000. 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 $7,000, none of which is guaranteed. Azure Company assumes direct responsibility for all executory costs, which include the following annual amounts: (1) $900 to Frontier Insurance Company for insurance and (2) $1,600 to Crawford County for property taxes. The agreement requires equal annual rental payments of $20,541.11 to the lessor, beginning on January 1, 2010. The lessee's incremental borrowing rate is 12%. The lessor's implicit rate is 10% and is known to the lessee. Azure Company uses the straight-line depreciation method for all equipment. Axure uses reversing entries when appropriate. Instructions (Round your answer to the nearest cent eg 8,751.25) (a) Complete the amortization schedule that would be suitable for the lessee for the lease term. AZURE COMPANY (Lessee) Lease Amortization Schedule Date Annual Lease Payment Interest (10%) on Liability Reduction of Lease Liability Lease Liability 1/1/10 $ 1/1/10 $ $ 1/1/11 $ 1/1/12 1/1/13 1/1/14 $ $ $ (b) Prepare all of the journal entries for the lessee for 2010 and 2011 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee's annual accounting period ends on December 31. (For multiple debit/credit entries, list amounts from largest to smallest eg 10, 5, 3, 2. Round your answer to the nearest cent eg 8,751.25) Date Description Debit Credit 1/1/10 Accumulated Depreciation-Capital LeasesInsurance ExpenseAccumulated Depreciation-EquipmentInterest ExpenseInterest ReceivableLease LiabilityEquipmentInterest PayableProperty Tax ExpenseInterest RevenueLease ReceivableLeased Equipment Under Capital LeasesCashDepreciation Expense $ Property Tax ExpenseInsurance ExpenseInterest ExpenseLeased Equipment Under Capital LeasesInterest PayableDepreciation ExpenseInterest ReceivableAccumulated Depreciation-Capital LeasesEquipmentAccumulated Depreciation-EquipmentInterest RevenueLease LiabilityLease ReceivableCash $ (To record the lease) 1/1/10 Depreciation ExpenseAccumulated Depreciation-Capital LeasesEquipmentLease ReceivableLease LiabilityAccumulated Depreciation-EquipmentInsurance ExpenseLeased Equipment Under Capital LeasesInterest RevenueCashProperty Tax ExpenseInterest PayableInterest ReceivableInterest Expense $ Accumulated Depreciation-EquipmentLeased Equipment Under Capital LeasesEquipmentInterest ReceivableProperty Tax ExpenseDepreciation ExpenseInterest ExpenseInterest PayableLease LiabilityLease ReceivableAccumulated Depreciation-Capital LeasesCashInterest RevenueInsurance Expense $ (To record lease payment) During 2010 Interest ReceivableInterest PayableLeased Equipment Under Capital LeasesInterest RevenueAccumulated Depreciation-EquipmentProperty Tax ExpenseAccumulated Depreciation-Capital LeasesEquipmentLease ReceivableCashInsurance ExpenseInterest ExpenseLease LiabilityDepreciation Expense $ Depreciation ExpenseAccumulated Depreciation-Capital LeasesInterest ExpenseLease LiabilityInterest PayableCashEquipmentAccumulated Depreciation-EquipmentInterest ReceivableInsurance ExpenseLease ReceivableInterest RevenueLeased Equipment Under Capital LeasesProperty Tax Expense $ (To record insurance payment) Lease LiabilityAccumulated Depreciation-Capital LeasesInterest ReceivableProperty Tax ExpenseEquipmentAccumulated Depreciation-EquipmentDepreciation ExpenseInterest RevenueLeased Equipment Under Capital LeasesCashInsurance ExpenseInterest ExpenseInterest PayableLease Receivable $ Interest ExpenseLease LiabilityInterest PayableEquipmentAccumulated Depreciation-Capital LeasesInsurance ExpenseProperty Tax ExpenseInterest RevenueLease ReceivableDepreciation ExpenseAccumulated Depreciation-EquipmentInterest ReceivableCashLeased Equipment Under Capital Leases $ (To record property tax payment) 12/31/10 Interest RevenueLease ReceivableLease LiabilityLeased Equipment Under Capital LeasesProperty Tax ExpenseInterest PayableDepreciation ExpenseInterest ExpenseCashAccumulated Depreciation-Capital LeasesEquipmentAccumulated Depreciation-EquipmentInsurance ExpenseInterest Receivable $ CashLease ReceivableAccumulated Depreciation-Capital LeasesDepreciation ExpenseInterest ExpenseInterest ReceivableEquipmentInterest RevenueAccumulated Depreciation-EquipmentInterest PayableLeased Equipment Under Capital LeasesLease LiabilityInsurance ExpenseProperty Tax Expense $ (To record interest) 12/31/10 Interest RevenueInsurance ExpenseAccumulated Depreciation-EquipmentLease LiabilityCashProperty Tax ExpenseInterest ExpenseEquipmentInterest PayableAccumulated Depreciation-Capital LeasesInterest ReceivableLease ReceivableDepreciation ExpenseLeased Equipment Under Capital Leases $ Accumulated Depreciation-EquipmentLease ReceivableInterest ReceivableAccumulated Depreciation-Capital LeasesProperty Tax ExpenseCashLeased Equipment Under Capital LeasesLease LiabilityInterest ExpenseInterest RevenueInsurance ExpenseInterest PayableEquipmentDepreciation Expense $ (To record depreciation ) 1/1/11 Insurance ExpenseAccumulated Depreciation-Capital LeasesInterest RevenueLease ReceivableProperty Tax ExpenseInterest ReceivableAccumulated Depreciation-EquipmentInterest PayableLeased Equipment Under Capital LeasesLease LiabilityInterest ExpenseDepreciation ExpenseEquipmentCash $ CashDepreciation ExpenseLease ReceivableInsurance ExpenseProperty Tax ExpenseAccumulated Depreciation-EquipmentInterest PayableAccumulated Depreciation-Capital LeasesLease LiabilityInterest RevenueEquipmentInterest ExpenseLeased Equipment Under Capital LeasesInterest Receivable $ (To reverse interest) 1/1/11 Interest ReceivableInsurance ExpenseLease ReceivableLeased Equipment Under Capital LeasesProperty Tax ExpenseInterest RevenueInterest ExpenseLease LiabilityCashDepreciation ExpenseAccumulated Depreciation-Capital LeasesInterest PayableEquipmentAccumulated Depreciation-Equipment $ Accumulated Depreciation-Capital LeasesEquipmentAccumulated Depreciation-EquipmentInsurance ExpenseInterest RevenueLeased Equipment Under Capital LeasesProperty Tax ExpenseInterest PayableCashDepreciation ExpenseInterest ReceivableLease ReceivableInterest ExpenseLease Liability $ Depreciation ExpenseLeased Equipment Under Capital LeasesLease LiabilityCashAccumulated Depreciation-Capital LeasesLease ReceivableEquipmentInterest PayableProperty Tax ExpenseAccumulated Depreciation-EquipmentInterest RevenueInsurance ExpenseInterest ReceivableInterest Expense $ (To record lease payment) During 2011 Accumulated Depreciation-Capital LeasesInterest ExpenseLeased Equipment Under Capital LeasesInterest RevenueInsurance ExpenseInterest PayableAccumulated Depreciation-EquipmentEquipmentLease LiabilityInterest ReceivableLease ReceivableDepreciation ExpenseCashProperty Tax Expense $ Depreciation ExpenseAccumulated Depreciation-Capital LeasesInsurance ExpenseInterest ReceivableLeased Equipment Under Capital LeasesEquipmentLease LiabilityInterest RevenueProperty Tax ExpenseInterest ExpenseInterest PayableAccumulated Depreciation-EquipmentCashLease Receivable $ (To record insurance payment) Interest RevenueCashLease LiabilityInsurance ExpenseLease ReceivableLeased Equipment Under Capital LeasesEquipmentProperty Tax ExpenseInterest ExpenseInterest PayableDepreciation ExpenseAccumulated Depreciation-Capital LeasesAccumulated Depreciation-EquipmentInterest Receivable $ CashEquipmentAccumulated Depreciation-EquipmentLeased Equipment Under Capital LeasesLease LiabilityInterest RevenueInterest ExpenseInsurance ExpenseProperty Tax ExpenseInterest PayableDepreciation ExpenseAccumulated Depreciation-Capital LeasesInterest ReceivableLease Receivable $ (To record property tax payment) 12/31/11 Insurance ExpenseLease ReceivableProperty Tax ExpenseInterest PayableDepreciation ExpenseEquipmentAccumulated Depreciation-EquipmentLeased Equipment Under Capital LeasesInterest ReceivableAccumulated Depreciation-Capital LeasesInterest RevenueInterest ExpenseLease LiabilityCash $ Accumulated Depreciation-Capital LeasesInterest PayableLease LiabilityLeased Equipment Under Capital LeasesCashInsurance ExpenseAccumulated Depreciation-EquipmentProperty Tax ExpenseInterest ExpenseEquipmentInterest ReceivableInterest RevenueDepreciation ExpenseLease Receivable $ (To record interest) 12/31/11 CashAccumulated Depreciation-EquipmentLease LiabilityInsurance ExpenseDepreciation ExpenseProperty Tax ExpenseLeased Equipment Under Capital LeasesInterest ReceivableInterest ExpenseInterest PayableAccumulated Depreciation-Capital LeasesEquipmentInterest RevenueLease Receivable $ Interest RevenueAccumulated Depreciation-EquipmentInterest ReceivableCashLease ReceivableAccumulated Depreciation-Capital LeasesLeased Equipment Under Capital LeasesInterest ExpenseInterest PayableDepreciation ExpenseLease LiabilityInsurance ExpenseEquipmentProperty Tax Expense $ (To record depreciation)