Ayayai Corporation entered into a lease agreement on January 1, 2020, to provide Blossom Company with a piece of machinery. The terms of the lease agreement were as follows.

1.		The lease is to be for 3 years with rental payments of $13,936 to be made at the beginning of each year.
2.		The machinery has a fair value of $58,000, a book value of $40,000, and an economic life of 8 years.
3.		At the end of the lease term, both parties expect the machinery to have a residual value of $20,000, none of which is guaranteed.
4.		The lease does not transfer ownership at the end of the lease term, does not have a bargain purchase option, and the asset is not of a specialized nature.
5.		The implicit rate is 4%, which is known by Dawkins.
6.		Collectibility of the payments is probable.

Evaluate the criteria for classification of the lease, and describe the nature of the lease. For the lessee, it is a operating leasesales-type leasefinance lease, and for the lessor, it is a finance leasesales-type leaseoperating lease.

Prepare the amortization schedules Blossom will use over the lease term.

BLOSSOM COMPANY Lease Amortization Schedule Annuity-Due Basis
Date		Annual Payment		Interest on Liability		Reduction of Lease Liability		Lease Liability
1/1/20								$
1/1/20		$		$		$
1/1/21
1/1/22

Lease Expense Schedule

Date

(A) Straight-Line Expense

(B) Interest on Lease Liability

(C) Amortization of Right-of-Use Asset (and Liability) (A-B)

Carrying Value of Right-of-Use Asset

1/1/20

$

12/31/20

$

$

$

12/31/21

12/31/22

Prepare the 2020 journal entries for Blossom.

Date	Account Titles and Explanation	Debit	Credit
Jan. 1
	(To record lease)
Jan. 1
	(To record first lease payment)
Dec. 31
	(To record lease expense and amortization)

Prepare the 2020 journal entries for Ayayai.

Date	Account Titles and Explanation	Debit	Credit
Jan. 1
	(To record lease payments)
Dec. 31
	(To record lease revenue)
Dec. 31
	(To record depreciation)

Suppose the lease were only for one year instead of 3 years, with just one lease payment at the beginning of the lease term. Prepare any journal entries Blossom would need, assuming it elects to use the short-term lease option.

Date	Account Titles and Explanation	Debit	Credit
Jan. 1