Question
Chan Co. leased equipment from Montano Co on January 1, 2021. Montano Co. purchased the equipment for $200,000. The lease term is 4 years and
Chan Co. leased equipment from Montano Co on January 1, 2021. Montano Co. purchased the equipment for $200,000. The lease term is 4 years and annual lease payments of $55,911 are due at the beginning of each year. The economic life of the equipment is 4 years with no residual value. The implicit interest rate is 8%. Both companies have a 12/31 fiscal year end.
a) How would Montano classify this lease? Explain. b) Provide Montanos journal entries for the first year of the lease. c) Provide Montanos journal entry for receiving the second lease payment. d) What pretax amounts related to the lease would Montano report in its balance sheet at December 31, 2021? e) What pretax amounts related to the lease would Montano report in its income statement for the year ended December 31, 2021?
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