Groban Equipment Company both leases and sells its equipment to its customers. The most popular line of equipment includes a machine that costs $400,000 to manufacture and sells for $667,650. The standard lease terms provide for three annual payments of $220,000 each, with the first payment due when the lease is signed and subsequent payments due on September 1, of each year. The implicit rate of interest in the contract is 9% per year (unknown to lessee) and the lease payment includes executory costs. Groban Equipment Company pays attorney fees of $5,000 for the lease contract. Turner Tool Co. leases one of the machines on September 1, 2014. Turners incremental borrowing rate is determined to be 10%. The equipment has an economic life of five years and a guaranteed residual value of $150,000 at the end of the lease. Turner uses the straight-line method to depreciate similar equipment.

Required:

1. How much of the lease payment should be allocated to executory costs?

2. Calculate the present value of the minimum lease payments to be paid by Turner Tool Company.

3. Prepare an amortization schedule for Turner Tool Companys lease payments.

4. Record all entries required on Turner Tool Companys books relating to the lease including the return of the equipment at August 31, 2017.