Home Insert Draw Page Layout Formulas Data Review Calibri (Body) 11 A K Paste BI U ili II TOT L25 B C D E F G 1 2 Magic Company manufactures copier machines. On January 1, 2020, Lotus Leasing purchased a copier 3 machine from Magic for $1,000,000 and leased it to Acme Inc. The terms of the lease are as follows: 5 years 5 Rental payments $65,258 at the beginning of each quarter 6 Lease term 5 years (20 quarters) 7 Residual value $0 8 Bargain Purchase Option n/a 9 Economic life of copier machine 10 Implicit interest rate 12% (also lessee's incremental borrowing rate 11 Fair value of asset $1,000,000 12 13 PV of an annuity due;n=20, 1-3% 15.3238 14 15 Required: 16 1. How should this lease be classified by Acme Inc. and by Lotus Leasing? 17 18 2. Prepare all appropropriate journal entries for both Acme Inc. and Lotus Leasing from the beginning of 19 the lease through the second rental payment on April 1, 2020. Depreciation and amortization are 20 recorded at the end of each fiscal year, December 31. 21 22 3. Assume Acme Inc leased the machine directly from the manufacturer, Magic Company, which 23 produced the machine at a cost of $700,000. Prepare appropriate entries for Magic from the beginning 24 of the lease through the second rental payment on April 1, 2020. 25 26 27 28 29 30 31 32 33 34