E$21\mathrm{.}7($LO $2,4)($Type of Lease; Amortization Schedule$)$ Macinski Leasing Company leases a new

machine to Sharrer Corporation. The machine has a cost of $$70,000$ and fair value of $$95,000.$ Under

the $3-$year, non$-$cancelable contract, Sharrer will receive title to the machine at the end of the lease. The

machine has a $3-$year useful life and no residual value. The lease was signed on January $1,2020.$ Macinski

expects to earn an $8\%$ return on its investment, and this implicit rate is known by Sharrer. The annual

rentals are payable on each December $31,$ beginning December $31,2020.$

Instructions

a$.$ Discuss the nature of the lease arrangement and the accounting method that each party to the lease

should apply.

b$.$ Prepare an amortization schedule that would be suitable for both the lessor and the lessee and that cover

all the years imvolved.

c$.$ Prepare the journal entry at commencement of the lease for Macinski.

d$.$ Prepare the journal entry at commencement of the lease for Sharrer.