Krause Company on January 1, 2015, enters into a five-year noncancealable lease, with four renewal options of one year each, for equipment having an estimated useful life of 10 years and a fair value to the lessor, Daly Corp, at the inception of the lease of $2,000,000. Krause's increamental borrowing rate is 8%.. Krause uses straight-line method to depreciate its assets. The lease contains the following provisions.

1. Rental payment of $159,000 including $13,000 for property taxes, payable at the beginning of eacgh six-month period.

2. A termination penalty, assuring renewal of the lease for a period of four years after expiration of the initial lease term.

3. An option allowing the lessorr to extend the lease one year beyound the last ren ewal exercised by the lessee.

4. A gurantee by Krause Company that Daly Corp. will realize $100,000 from selling the asset at the expiration of the lease. However, the actual residual value is expected to be $60,000.

Instruction

(a) What kind of lease is this to Krause Company?

(b0 What should be considered the lease term/

(c) what are the minimu lease payment

(d) What is the present value of the minimum lease paymeny? (PV factor for annuity due of 20 semi-annual payment at 8% annual rate, 14,13394; PV factor for amount due in 20 interest periods at 8% annual rate, 45639.) (Round to the nearest dollar)

(e0 What journal entries would Krause record during the first year of the lease? (Include an amortization schedule through 1/1/16 and round to the nearest dollar.)