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Finance Lease for Lessee On January 1 of Year 2, Tiffany Company leased new equipment to Masy's Corporation. The equipment cost Tiffany $180,000. The lease
Finance Lease for Lessee
On January 1 of Year 2, Tiffany Company leased new equipment to Masy's Corporation. The equipment cost Tiffany $180,000. The lease agreement specified that Masy's is to make five annual lease payments on January 1 , beginning January 1 of Year 2, to yield Tiffany a 5\% return. The equipment has a five-year useful life with an unguaranteed residual value of $9,000. Ownership of the underlying asset remains with Tiffany at the end of the lease term. Masy's is aware of the implicit interest rate used by Tiffany. The accounting period for Masy's ends December 31 . Required a. Compute the annual fixed lease payment calculated by the lessor. b. Determine the (1) lessee's lease classification and (2) initial lease liability balance. c. Provide journal entries for the lessee on January 1 and December 31 of Year 2 and Year 3Step by Step Solution
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