Lennix Leasing Company agrees on January 1, 2016 to rent Lake Sofia Winery the equipment that Lake Sofia requires to expand its production capacity to meet customers' demands for its products. The lease agreement calls for five annual lease payments of $120 000 at the end of each year. Lake Sofia has identified this as a finance lease. Furthermore, the company has determined that the present value of the lease payments, discounted at 6%, is $505 484. The leased equipment has an estimated useful life of five years and no residual value. Lake Sofia uses the straight-line method for depreciating similar equipment that it owns.

Requirements

a. Prepare a lease amortization schedule for this lease.

b. Prepare the necessary journal entries for the first year of the lease.

c.Use the student to show work button to answer the following questions. Justify the journal entry to raise the lease. Justify the calculation of depreciation.

(Please show your workings for each part. Thank you in advance!)

Requirement a. Prepare a lease amortization schedule for this lease. (Round to the nearest dollar. Enter a "0" for any zero balances.) Interest Reduction Principal after interest Lease payments at end of year Period Year for year in principal and payments 1 2016 2 2017 3 2018 4 2019 5 2020 Requirement b. Prepare the necessary journal entries for the first year of the lease. (Round to the nearest dollar. Record debits first, then credits. Explanations are not required.) Begin by preparing the entry to record the lease on January 1, 2016. Date Accounts Debit Credit Jan. 1 2016 Next, prepare the entry to show the lease payment and interest expense at the end of 2016. Date Accounts Debit Credit Dec. 31 2016 Now prepare the entry to show the 2016 depreciation on the equipment. Date Accounts Debit Credit Dec. 31 2016