Caterpillar Financial Services Corp. (a subsidiary of Caterpillar) and Sterling Construction Corp. sign a lease agreement dated January 1, 2017, that calls for Caterpillar to lease a front-end loader to Sterling beginning January 1, 2017. The terms and provisions of the lease agreement, and other pertinent data, are as follows.

The term of the lease is five years. The lease agreement is non-cancelable, requiring equal rental payments at the beginning of each year (annuity-due basis).

The loader has a fair value at the inception of the lease of $50,000, an estimated economic life of five years, and no residual value of the loader at the end of the lease. Further, assume that the underlying asset has an $42,500 cost to the dealer, Caterpillar.

The lease contains no renewal options. The loader reverts to Caterpillar at the termination of the lease.

Collectability of payment by Caterpillar is probable.

Caterpillar sets the annual rental payment to earn a rate of return of 4% per year (implicit rate) on its investment

Required

1.Prepare a partial Balance Sheet for Caterpillar Finance as December 31, 2017

2.Prepare a partial Income Statement for Caterpillar Finance as December 31, 2017

3. Prepare journal entry to record the return of leased asset to Caterpillar on January 1, 2022