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Cheyenne Incorporated leases a piece of equipment to Sage Hill Corporation on January 1, 2020. The lease agreement called for annual rental payments of $4,590

Cheyenne Incorporated leases a piece of equipment to Sage Hill Corporation on January 1, 2020. The lease agreement called for annual rental payments of $4,590 at the beginning of each year of the 4-year lease. The equipment has an economic useful life of 6 years, a fair value of $24,000, a book value of $19,000, and both parties expect a residual value of $8,400 at the end of the lease term, though this amount is not guaranteed. Cheyenne set the lease payments with the intent of earning a 5% return, and Sage Hill is aware of this rate. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature.

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(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Prepare the lease amortization schedule(s) for Sage Hill for all 4 years of the lease.

SAGE HILL CORPORATION
Lease Amortization Schedule
Annuity-Due Basis
DateAnnual PaymentInterest on LiabilityReduction of
Lease Liability
Lease Liability
1/1/20$$$$
1/1/20
1/1/21
1/1/22
1/1/23

Lease Expense Schedule
DateLease Expense
(Straight-Line)
Interest on
Lease Liability
Amortization of
ROU Asset
Carrying Value of
ROU Asset
1/1/20$$$$
12/31/20
12/31/21
12/31/22
12/31/23

Prepare the journal entries for Sage Hill for 2020 and 2021. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)

Date

Account Titles and Explanation

Debit

Credit

1/1/2012/31/201/1/2112/31/21

(To record the lease)

1/1/2012/31/201/1/2112/31/21

(To record lease payment)

1/1/2012/31/201/1/2112/31/21

1/1/2012/31/201/1/2112/31/21

1/1/2012/31/201/1/2112/31/21

Suppose Sage Hill incurs initial direct costs of $700 related to the lease. Prepare the journal entries for 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)

Date

Account Titles and Explanation

Debit

Credit

1/1/2012/31/20

(To record the lease)

1/1/2012/31/20

(To record lease payment)

1/1/2012/31/20

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