Lease facts:

• Date of lease 6/1/19
• Term 3 years (expires 6/1/22)
• Semi-annual lease payments of $100,000 every 6/1 and 12/1
• Lessees incremental borrowing rate 6%
• Lessors implicit rate of return 5% (NOT known to lessee)
• Lessors cost of asset leased - $250,000
• Guaranteed residual value - $70,000 (lessee believes fair value of the asset at the end of the lease will be greater than $70,000).
• Lessee and Lessor both have a December 31^st

Requirements:

Assume the lease is treated as an operating lease:

1. Prepare a table similar to the one distributed in class showing the interest and depreciation portions of annual lease expense for each year of the lease.
2. Prepare all of the lessees required journal entries for 2019 and 2020
3. Prepare all of the lessors required journal entries for 2019 and 2020