Instructions Adden Company signs a lease agreement dated January 1, 2019, that provides for it to lease non-specialized heavy equipment from Scott Rental Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 4 years. The lease is noncancelable and requires annual rental payments of $20,000 to be paid in advance at the beginning of each year. 2. The cost, and also fair value, of the heavy equipment to Scott at the inception of the lease is $68,036.62. The equipment has an estimated life of 4 years and has a zero estimated residual value at the end of this time. 3. Adden agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. Scott's interest rate implicit in the lease is 12%. Adden is aware of this rate, which is equal to its borrowing rate. 6. Adden uses the straight-line method to record depreciation on similar equipment. 7. Executory costs paid at the end of the year by Adden are: 2019 Insurance, $1,500 2020 Insurance, $1,300 Property taxes, $5,500 Property taxes, $6,000 Required: 1. Next Level Determine what type of lease this is for Adden. 2. Prepare a table summarizing the lease payments and interest expense for Adden. 3. Prepare journal entries for Adden for the years 2019 and 2020. Chart of Accounts CHART OF ACCOUNTS Adden Company General Ledger ASSETS 111 Cash 121 Accounts Receivable 141 Inventory 152 Prepaid Insurance 181 Equipment 189 Accumulated Depreciation 190 Right-of-Use Asset LIABILITIES REVENUE 411 Sales Revenue EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 513 Lease Expense 515 Amortization Expense 516 Property Tax Expense Chart of Accounts 141 Inventory 152 Prepaid Insurance 181 Equipment 189 Accumulated Depreciation 190 Right-of-Use Asset LIABILITIES 211 Accounts Payable 231 Salaries Payable 253 Lease Liability 261 Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 513 Lease Expense 515 Amortization Expense 516 Property Tax Expense 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense GENERAL JOURNAL Shaded cells have feedback. PAGE 1 Score: 106/138 1 2 DATE Jan. 1 Right-of-Use Asset Lease Liability ACCOUNT TITLE POST, REF. DEBIT CREDIT 68,036.62 68,036.62 3 Jan. 1 Lease Expense 20,000.00 4 Cash 20,000.00 S Jan. 1 Interest Expense 8,164.40 8,164.40 6 Income Tax Expense 8,164.40 7 Jan. 1 Depreciation Expense 17,009.15 8 Right-of-Use Asset 17,009.15 6 Dec. 31 Insurance Expense 1,500.00 10 10 Property Tax Expense 5,500.00 11 Cash 7,000.00 GENERAL JOURNAL Score: 89/113 1 DATE Jan. 1 Lease Liability ACCOUNT TITLE POST. REF. DEBIT CREDIT 200,000.00 2 Cash 20,000.00 3 Jan. 1 Interest Expense 6,744.12 4 Income Tax Expense 6,744.12 S Dec. 31 Depreciation Expense 17,009.15 6 Right-of-Use Asset 17,009.15 7 Dec. 31 Insurance Expense 1,300.00 Property Tax Expense 6,000.00 Cash 7,300.00