Cole Company leased office equipment from Bean Leasing on 1/1/Year1. The fair value of the equipment was $120,000, and it has an estimated useful life of 10 years. Bean earns 10% on leases of this type.

Cole leased it for 6 years and made 6 annual payments of $18,400. The payments occurred on December 31 of Year1 through Year6. The present value of Coles lease payments at the 10% implicit rate is $80,137. (This is the annual lease payment of 18,400 x the factor for the PV of an ordinary annuity factor.

1. Is this an operating lease or a financing lease?

.2.What journal entry will Cole record to reflect the original lease payable obligation on 1/1/Yr1?

3.Complete the amortization table for the lease payable. Ignore any small rounding error at the end.

4.How much of the lease payment on 12/31/yr1 is labeled interest on the lease payable amortization schedule?

5.Related to this lease, how will Cole report as each of the following on the income statement for Year1?

Hint: consider your answer to Question 1 as there are different reporting for the 2 types of leases. If the account title is not used on the income statement for this type of lease, answer N/A. You will have at least one N/A.

a.Lease or rent expense

b.Interest expense

c.Amortization expense

6.What is the lease liability amount after the payment on 12/31/Yr1?

7.How will Cole report the lease liability on the balance sheet (as a regular liability or as a non-debt liability)?

8.What will Cole report as a right-of use asset on the balance sheet at 12/31/Year1?

9.Does the lessor (Bean Leasing) remove the leased equipment from its assets when the lease is assigned? Answer just Yes or No.

10.If Bean (the Lessor) paid a legal fee in connection with executing the lease documents, how would the cost be treated. (Choose A. or B and you just need to type the letter

A. Expense all of the cost in Year1.

B. Expense evenly over 6 years