Carla Vista Steel Corporation, as lessee, signed a lease agreement for equipment for five years, beginning January 31, 2020. Annual rental payments of $45,000 are to be made at the beginning of each lease year (January 31). The insurance and repairs and maintenance costs are the lessees obligation. The interest rate used by the lessor in setting the payment schedule is 9%; Carla Vistas incremental borrowing rate is 10%. Carla Vista is unaware of the rate being used by the lessor. At the end of the lease, Carla Vista has the option to buy the equipment for $3,300, which is considerably below its estimated fair value at that time. The equipment has an estimated useful life of seven years with no residual value. Carla Vista uses straight-line depreciation on similar equipment that it owns and follows IFRS 16.

1. Calculate the PV of the lease obligation.

2. Prepare the lease amortization schedule for the lease.

3. Prepare the journal entry that should be recorded on January 31, 2020, by Carla Vista.

4. Prepare any necessary adjusting journal entries at December 31, 2020, and the journal entry or entries that should be recorded on January 31, 2021, by Carla Vista. Carla Vista does not use reversing entries.

5. What amounts would appear on Carla Vistas December 31, 2021, SFP relative to the lease arrangement?