Company A enters into a lease agreement as lessor on January 1, 2016. The term of the noncancelable lease is 10 years and payments are required at the end of each year. The following information relates to this agreement:

1. Lessee has the option to purchase the asset for $12,000 when the lease expires at which time the fair value is expected to be $30,000

2. The asset has a cost of $100,000, an estimated useful life of fifteen years, and a salvage value of zero at the end of that time

4. Company A wants to have a ROI of 10%

Instructions

1. What will the payment be for each period?
2. What is this lease to lessor
3. Prepare a lease amortization schedule for the lessor for the first two years. (Round all amounts to nearest dollar.)
4. Prepare the journal entries on the books of the lessor to record the lease agreement, to reflect payments received under the lease, and to recognize income, for the years 2016 and 2017.
5. Prepare journal entries and amortization schedule for lessee, assume the incremental borrowing rate for lessee is 8% and lessee is aware of the rate used by the lessor