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Assume the following facts concerning a salestype lease: I! The lease term is three years and qualifies as a capital lease for both lessor and

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Assume the following facts concerning a salestype lease: I! The lease term is three years and qualifies as a capital lease for both lessor and lessee. The asset reverts to the lessor at the end ofthe lease term. Assume straightline depreciation by the lessee. Ir Payments are SS, at the beginning of each year, plus a guaranteed residual 1uralue of $10,000 at the end of the lease term. The lessor estimates a total residual value of $15,000. Lease payments include 54,000 for executory costs under a maintenance agreement. It Initial direct costs associated with the lease are $2.?[ll]. Ir Ca sh sales price of the asset is 313110150. Lessor ' 5 manufacturing cost is Sl. Ir The lessee does not know the lessor ' s implicit rate, but its own incremental borrowing rate is 11%. Required: a. Prepare the accounting entries for both lessor and lessee for the three years. What happens in Year 3 if residual value is only 53,000? b. Assume the same facts as before except that the asset is rst sold to a finance company, which then leases the asset to the lessee. Prepare the required entries in all three years for lessor and lessee. c. Eyaluate the differences between requirements {a} and [b] as well as the differences between lessor and lessee

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