Bidwell Leasing purchased a single-engine plane for $550,000 and leased it to Red Baron Flying Club for its fair value of $771,147 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: a. Eight annual payments of $135,000 beginning January 1, 2021, the beginning of the lease, and at each December 31 through 2027 Red Baron knows that Bidwell Leasing's implicit interest rate was 11%. The estimated useful life of the plane is eight years. Payments were calculated as follows: $771, 147 $135,000 Amount to be recovered (fair value) Lease payments at the beginning of each of the next eight years: (9771,147 - 5.7122) * Present value of an annuity due of $1: n = 8,i = 11% b. Red Baron's incremental borrowing rate is 12%. c. Incremental costs of consummating the completed lease transaction incurred by Bidwell Leasing were $16,403. 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 b. Red Baron's incremental borrowing rate is 12%. c. Incremental costs of consummating the completed lease transaction incurred by Bidwell Leasing were $16,403. Required: 1. How should this lease be classified (s) 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). Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 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 (b) Red baron Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 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) View transaction list Journal entry worksheet 1 2 3 45 Record the beginning of the lease for Red Baron Flying Club Note: Enter debits before credits General Journal Debit Credit Date January 01, 2021 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 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 Date Decrease Effective Outstanding Payments Interest in Balance Balance 1/1/21 12/31/21 12/31/22 12/31/23 12/31/24 12/31/25 12/31/26 12/31/27 $ 0$ 0 $ 0
