Jinx, Incorporated, manufactiured a machine (for leasing purposes) on January 1, 2020, for $250,000. On January 1, 2020 the fair value of the machine on January 1, 2020 was $270,000. The machine was delivered to Pine Company (lessee) under a lease whereby Pine paid the first lease payment on January 1, 2020, and agreed to pay three more such annual rentals. At the end of the four-year lease term, the machine will revert to the lessor, at which time it is expected to have a residual value of $20,000 (none of which was guaranteed by the lessee or by any other party). The machine has a five year useful life. The lessor's implicit interest rate is 10% and this rate is known to the Lessee. Collectability of lease payments is not an issue.

LEASE PROBLEM K

Assume the same information as in J, except for the following two variations:

Variation #1: The Lessee guarantees the residual value of $20,000 but expects the machine to have a residual value of $10,000 at the end of the lease term.

Required:Whats the Lessors Lease Receivable and the Lessees Lease Liability at the beginning? Prepare the Lessees amortization schedule.

Variation #2: There is a Bargain Purchase Option of $10,000 and the Lessee expects to exercise the BPO and buy the machine at the end of the lease term.

Required:How would the Lessors and the Lessees accounting differ from their accounting in Problem J above? Do Part 2 only. (Part 1 on classification does not change).