Brady Manufacturing Co. leased a piece of nonspecialized machinery for use in its operations from Stellar Leasing on Jan 1.

The 13 year lease requires lease payments of $3000 due on Jan 1 of each year. The machinery is estimated to have a 13 year life, is depreciated on the straight line method, and will have no residual value at the end of the lease term. The present value of the lease payments using 11.2% and the assets fair value on the date the lease is signed both equal $22293. Stellar paid $20000 to acquire the equipment. The lessor's implicit rate of 11.2% is know to Brady. Collection of all lease payments is reasonable assured.

Begin by classifying the lease agreement for Stellar Leasing.

Prepare journal entry for Stellar at the inception of the lease on Jan 1. Exclude the first annual lease payment from this entry.

Prepare the entry for the annual lease payment received on Jan 1.

Record Stellars interest revenue related to the lease on Dec 31.