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Coaldale Baked Goods (lessee) signed a lease agreement with the Pastry Machine Supply Company on January 1, 2023 that calls for the Coaldale Baked Goods
Coaldale Baked Goods (lessee) signed a lease agreement with the Pastry Machine Supply Company on January 1, 2023 that calls for the Coaldale Baked Goods to lease a pastry machine beginning January 1, 2023. The following were the provisions of the lease agreement. - The term of the lease is 4 years and the lease agreement is non-cancelable, requiring equal rental payments of $3,097.26 at January 1 of each year (starting January 1, 2023) - The lessee pays all the executory costs each year that consists of $150 per year, which are not included in the rental payments. - There are no renewal options and the machine reverts to the lessor at the termination of the lease - Pastry Machine Supply set the annual rental to ensure a rate of return of 9% per year, this fact is known to Coaldale Baked Goods - The lessee's incremental borrowing rate is 11% - The lessee uses straight line depreciation for all of its capital assets - The end of Coaldale Baked Goods accounting period is December 31 - Coaldale Baked Goods guarantees the value of the machine to be $1,500 at the end of the termination of the lease - Fair value of the machine at the inception of the lease is $12,000 Required 1. Indicate the type of lease the Coaldale Baked Goods has entered into and your reasons for this classification. 2. Prepare a table for the lessee 3. Prepare journal entries for January 1, 2023 and December 31, 2023, and then each subsequent year for the lessee. Pastry Supply sold the machine for $800 on January 1 , 2027
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