Instructions

1. Classify this lease from the perspective of Marlene Corp. as an operating lease or a finance lease. Explain in detail how you arrived at this conclusion.

2. Prepare the journal entries for the lessee for 2019 to reflect the lease agreement.

III. Lease type identification and journal entries (19 points) Assume that on January 1, 2019, Marlene Corp. leases restaurant equipment from Lael Corp The relevant information is as follows A. The term of the non-cancelable lease is 3 years; title will not transfer to Marlene, and the expected residual value at the end of the lease is S1,125,000, all of which is unguaranteed. B. The lease agreement requires equal rental payments of $277,635 at the beginning of each C. The incremental borrowing rate for Marlene is 7%. Marlene is aware that Lael set the annual D. The equipment has a fair value of S1,700,000 on January 1,2019, and an estimated E. The present value of an ordinary annuity of SI payments at 7% is 2.624316 for three years year. rental to ensure a rate of return of 7%. economic life of 10 years. and 1.808018 for two years. At 7% the present value of $1 to be received after one year is 0.934579, ater two years is 0.873439, and after three years is 0.816298