Hayes Corp. is a manufacturer of truck trailers. On January 1, 2021, Hayes Corp. leases ten trailers to Lester Company under a six-year non-cancelable lease agreement. The following information about the lease and the trailers is provided:

1) Annual payment of $120,175 is due on January 1, 2021 and at December 31 from 2021 to 2025. Hayes Corp. has an implicit rate of 8% (present value factor for 6 periods at 8% is 4.99271).

2) Titles to the trailers pass to Lester at the end of the lease.

3) The fair value of each trailer is $60,000. The cost of each trailer to Hayes Corp. is $54,000. Each trailer has an expected useful life of nine years.

4) Collectibility of the lease payments is probable.

Instructions

(a) What type of lease is this for the Lester Company and Hayes Corp?

(b) Prepare a lease amortization schedule for Lester Company till 12/31/2021.

(c) Prepare the journal entries for Lester Company on 1/1/2021 and 12/31/2021. Round all amounts to the nearest dollar.