Bidwell Leasing purchased a single-engine plane for $430,000 and leased it to Red Baron Flying Club for its fair value of $695,470 on January 1, 2021. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Terms of the lease agreement and related facts were: Eight annual payments of $125,000 beginning January 1, 2021, the beginning of the lease, and at each December 31 through 2027. Red Baron knows that Bidwell Leasings implicit interest rate was 12%. The estimated useful life of the plane is eight years. Payments were calculated as follows: Amount to be recovered (fair value) $ 695,470 Lease payments at the beginning of each of the next eight years: ($695,470 5.56376*) $ 125,000 * Present value of an annuity due of $1: n = 8, i = 12% Red Barons incremental borrowing rate is 13%. Incremental costs of consummating the completed lease transaction incurred by Bidwell Leasing were $18,555. Required: 1. How should this lease be classified (a) by Bidwell Leasing (the lessor) and (b) by Red Baron (the lessee)? 2. Prepare the appropriate entries for both Red Baron Flying Club and Bidwell Leasing on January 1, 2021. 3. Prepare an amortization schedule that describes the pattern of interest expense over the lease term for Red Baron Flying Club. 4. Prepare the appropriate entries for both Red Baron and Bidwell Leasing on December 31, 2021 (the second lease payment). Both companies use straight-line depreciation. 5. Prepare the appropriate entries for both Red Baron and Bidwell Leasing on December 31, 2027 (the final lease payment).

How should this lease be classified (a) by Bidwell Leasing (the lessor) and (b) by Red Baron (the lessee)? (Round your intermediate and final answers to nearest whole dollar.) (a) Bidwell Sales-type lease Operating lease (b) Red baron Prepare the appropriate entries for both Red Baron Flying Club and Bidwell Leasing on January 1, 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate and final answers to nearest whole dollar.) No General Journal Credit Date January 01, 2021 Equipment Lease payable Debit 695.470 1 695,470 2 125.000 January 01, 2021 Lease payable Cash 125,000 3 695.470 430.000 January 01, 2021 Lease receivable Cost of goods sold Sales revenue Equipment 695,470 430,000 4 18.555 January 01, 2021 Selling expense Cash 18,555 5 125.000 January 01, 2021 Cash Lease receivable 125,000 IS IS Prepare an amortization schedule that describes the pattern of interest expense over the lease term for Red Baron Flying Club. (Round your intermediate and final answers to nearest whole dollar. Enter all amounts as positive values.) Lease Amortization Schedule Effective Date Payments Decrease Outstanding Interest in Balance Balance S 695.470 1/1/21 125,000 68,456 XS 56,544 513,470 X 12/31/21 125,000 61,671 63,329 450,141 12/31/22 125.000 54,072 X 70,928 379.213 12/31/23 125.000 45,540 X 79,460 299,753 12/31/24 125,000 36,027 88,973 210.780 12/31/25 125.000 25,351 X 99,649 111,131 12/31/26 125.000 13,393 X 111,607 (476) 12/31/27 125,000 125,476 (476) 0 $ 1,000,000 S 429,986 S 570,014 Prepare the appropriate entries for both Red Baron and Bidwell Leasing on December 31, 2021 (the second lease payment). Both companies use straight-line depreciation. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate and final answers to nearest whole dollar.) No Date General Journal Debit Credit 1 December 31, 202 Interest expense 68.456 56.544 Lease payable Cash 125.000 2 86,934 December 31, 202 Depreciation expense Accumulated depreciation 86,934 3 December 31, 202 Cash 125.000 Lease receivable 58,544 68,456 Interest revenue Prepare the appropriate entries for both Red Baron and Bidwell Leasing on December 31, 2027 (the final lease payment). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate and final answers to nearest whole dollar.) No Date General Journal Debit Credit