Bidwell Leasing purchased a single-engine plane for its fair value of $571,220 and leased it to Red Baron Flying Club 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:

1. Eight annual payments of $100,000 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 11%. The estimated useful life of the plane is eight years. Payments were calculated as follows:

Amount to be recovered (fair value)	$	571,220
Lease payments at the beginning of each of the next eight years: ($571,220 5.7122*)	$	100,000

*Present value of an annuity due of $1: n = 8, i = 11%.

2. Red Baron's incremental borrowing rate is 12%.
3. Incremental Costs of negotiating and consummating the completed lease transaction incurred by Bidwell Leasing were $15,622.

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. Determine the effective rate of interest for Bidwell Leasing for the purpose of recognizing interest revenue over the lease term. 5. Prepare an amortization schedule that describes the pattern of interest revenue over the lease term for Bidwell Leasing. 6. 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. 7. Prepare the appropriate entries for both Red Baron and Bidwell Leasing on December 31, 2027 (the final lease payment).

Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 How should this lease be classified (a) by Bidwell Leasing (the lessor) and (b) by Red Baron (the lessee)? a. Bidwell Leasing b. Red Baron Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Prepare the appropriate entries for both Red Baron Flying Club and Bidwell Leasing on January 1, 2021. (If transaction/event, select "No journal entry required" in the first account field. Round your intermediate and whole dollar.) View transaction list X > 1 Record the beginning of the lease for Red Baron Flying Club. 2 Record the payment of lease for Red Baron Flying Club. 3 Record the beginning of the lease for Bidwell Leasing. 4 Record the initial direct costs for Bidwell Leasing. Credit 5 Record cash received by Bidwell Leasing. Note : = journal entry has been entered Record entry Clear entry View general journal Required 1 Required 2 Required 3 Required 4 Required 5 Required 5 Required 7 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 Payments Effective Decrease Interest in Balance Date Outstanding 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 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Determine the effective rate of interest for Bidwell Leasing for the purpose of recognizing interest revenue over the lease term. (Round your intermediate and final answers to nearest whole dollar.) Effective rate of interest % Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Prepare an amortization schedule that describes the pattern of interest revenue over the lease term for Bidwell Leasing. (Round your intermediate and final answers to nearest whole dollar. Enter all amounts as positive values.) Lease Amortization Schedule Effective Decrease Payments Interest in Balance Date Outstanding 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 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Prepare the appropriate entries for both Red Baron and Bidwell Leasing on December 31, 2021 (the second lease p companies use straight-line depreciation. (If no entry is required for a transaction/event, select "No journal entry re account field. Round your intermediate and final answers to nearest whole dollar.) View transaction list 1 Record the lease payment for Red Baron Flying Club. > 2 Record the amortization expense for Red Baron Flying Club. 3 Record the lease payment for Bidwell Leasing. Credit Note : = journal entry has been entered Record entry Clear entry View general journal Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Prepare the appropriate entries for both Red Baron and Bidwell Leasing on December 31, 2027 (the final lease payme required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate to nearest whole dollar.) View transaction list 1 Record the lease payment for Red Baron Flying Club. > 2 Record the amortization expense for Red Baron Flying Club. 3 Record the lease payment for Bidwell Leasing. Credit Note : = journal entry has been entered Record entry Clear entry View general journal Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 How should this lease be classified (a) by Bidwell Leasing (the lessor) and (b) by Red Baron (the lessee)? a. Bidwell Leasing b. Red Baron Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Prepare the appropriate entries for both Red Baron Flying Club and Bidwell Leasing on January 1, 2021. (If transaction/event, select "No journal entry required" in the first account field. Round your intermediate and whole dollar.) View transaction list X > 1 Record the beginning of the lease for Red Baron Flying Club. 2 Record the payment of lease for Red Baron Flying Club. 3 Record the beginning of the lease for Bidwell Leasing. 4 Record the initial direct costs for Bidwell Leasing. Credit 5 Record cash received by Bidwell Leasing. Note : = journal entry has been entered Record entry Clear entry View general journal Required 1 Required 2 Required 3 Required 4 Required 5 Required 5 Required 7 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 Payments Effective Decrease Interest in Balance Date Outstanding 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 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Determine the effective rate of interest for Bidwell Leasing for the purpose of recognizing interest revenue over the lease term. (Round your intermediate and final answers to nearest whole dollar.) Effective rate of interest % Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Prepare an amortization schedule that describes the pattern of interest revenue over the lease term for Bidwell Leasing. (Round your intermediate and final answers to nearest whole dollar. Enter all amounts as positive values.) Lease Amortization Schedule Effective Decrease Payments Interest in Balance Date Outstanding 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 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Prepare the appropriate entries for both Red Baron and Bidwell Leasing on December 31, 2021 (the second lease p companies use straight-line depreciation. (If no entry is required for a transaction/event, select "No journal entry re account field. Round your intermediate and final answers to nearest whole dollar.) View transaction list 1 Record the lease payment for Red Baron Flying Club. > 2 Record the amortization expense for Red Baron Flying Club. 3 Record the lease payment for Bidwell Leasing. Credit Note : = journal entry has been entered Record entry Clear entry View general journal Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Required 7 Prepare the appropriate entries for both Red Baron and Bidwell Leasing on December 31, 2027 (the final lease payme required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate to nearest whole dollar.) View transaction list 1 Record the lease payment for Red Baron Flying Club. > 2 Record the amortization expense for Red Baron Flying Club. 3 Record the lease payment for Bidwell Leasing. Credit Note : = journal entry has been entered Record entry Clear entry View general journal