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Aztec Corp. is a manufacturer of truck trailers. On April 1, 2020, Aztec Corp. leases ten trailers to Wildcat Company under a six-year noncancelable lease
Aztec Corp. is a manufacturer of truck trailers. On April 1, 2020, Aztec Corp. leases ten trailers to Wildcat Company under a six-year noncancelable lease agreement. The following information about the lease and the trailers is provided: 1. Equal annual payments that are due starting on April 1, 2020 provide Aztec Corp. with an 8% return on net investment, unknown to Wildcat Company. 2. There is a guaranteed residual value of $5,000 for each trailer, and based on past leases, Wildcat Co is expected to pay approximately $2,000 per trailer under this agreement. 3. The fair value of each trailer is $65,000. The cost of each trailer to Aztec Corp. is $45,000. Each trailer has an expected useful life of nine years. 4. Wildcat's borrowing rate is 11% Instructions (a) Calculate the annual lease payment. (Round to nearest dollar.) (b) Prepare the journal entries for both the lessee and lessor for 2020 to record the lease agreement and the year-end entries. Round all amounts to the nearest dollar
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