Bart Co. leases a common piece of equipment to Lisa Corp. The lease begins on January 1, 2020, and includes the following terms:

The lease is for 6 years and is non-cancelable.

The equipment reverts to Bart Co. at the end of the lease, with no renewal or purchase options.

Lisa Corp. guarantees a residual value of $25,000. This is also the expected residual value.

Bart Co. uses an implicit interest rate of 4% to set the lease payments of $16,369, which are due at the beginning of each year, starting with January 1, 2020. The collectability of these payments is probable.

The implicit interest rate is known to Lisa Corp. Lisas incremental borrowing rate is 5%.

The fair value of the equipment is $109,000 at the inception of the lease. Its estimated remaining economic life is 20 years. The cost of the equipment on Bart Co.s books is $100,000.

Both parties use straight-line depreciation when accounting for similar pieces of equipment.

Assume that the residual value is unguaranteed (it's still expected to be $25,000, but is not guaranteed by the lessee). Be sure to consider whether this change affects the classification of the lease for accounting purposes.

1) How much Lease Expense should Lisa Corp. (the lessee) report on its income statement for 2020?

$2,915

$3,705

$12,664

$13,454

$16,369

2) What is the value of the Right of Use Asset that Lisa Corp. (the lessee) should report on its balance sheet for December 31, 2020?

$61,795

$72,872

$74,368

$75,787

$90,833

3)How much Sales Revenue should Bart Co. (the lessor) record at the inception of the lease?

$0

$72,872

$89,241

$84,000

$109,000

4)How much Lease Revenue should Bart Co. (the lessor) report on its income statement for 2021?

$2,915

$3,705

$12,664

$13,454

$16,369

5) Which scenario will lead to a larger amount of expense over the life of the lease? The guaranteed or the unguaranteed?

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