Data:

Timmer Company signs a lease agreement dated January 1, 2016, that provides for it to lease equipment from Landau Company beginning January 1, 2016. The lease terms, provisions, and related events are as follows:

The lease is noncancelable and has a term of 5 years.

The annual rentals are $83,222.92, payable at the end of each year, and provide Landau with a 12% annual rate of return on its net investment.

Timmer agrees to pay all executory costs at the end of each year. In 2016, these were insurance, $3,760; property taxes, $5,440. In 2017: insurance, $3,100; property taxes, $5,330.

There is no renewal or bargain purchase option.Timmer estimates that the equipment has a fair value of $300,000, an economic life of 5 years, and a zero residual value. Timmer's incremental borrowing rate is 16%, it knows the rate implicit in the lease, and it uses the straightline method to record depreciation on similar equipment.

Question:

1.Calculate the amount of the asset and liability of Timmer at the inception of the lease.

2.Create table summarizing the lease payments and interest expense, with headers of:

Date

Lease Payment Required

Interest Expense at 12% on Obligation Balance

Reduction of Lease Obligation

Balance of Lease Obligation

3.create journal entries on the books of Timmer for 2016 and 2017.

4.createa partial balance sheet in regard to the lease for Timmer for December 31, 2016. with columns:

Assets

Property, Plant, and Equipment:

Leased property less accumulated amortization $$

Liabilities

Current:

Capital lease obligation $$

Noncurrent:

Capital lease obligation $$

Use the change in present value approach to classify the capital lease obligation between current and noncurrent.