Question
Lessor Computations and Entries, sales- ype Lease with Unguaranteed Residual Value) Atlas Company manufactures fast-food kiosk with an estimated economic life of 10 years and
Lessor Computations and Entries, sales- ype Lease with Unguaranteed Residual Value) Atlas Company manufactures fast-food kiosk with an estimated economic life of 10 years and leases it to Rodeo Chicken for a period of 9 years. The normal selling price of the equipment is $172,842, and its unguaranteed residual value at the end of the lease term is estimated to be $25,000. Rodeo will pay annual payments of $21,000 at the beginning of each year. Atlas incurred costs of $143,000 in manufacturing the equipment and $2,500 in sales commissions in closing the lease. Atlas has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 5%. Question: (Lessee Computations and Entries, Finance Lease with Unguaranteed Residual Value) Assume the same data as given above, with Rodeo Chicken having an incremental borrowing rate of 5%. Instructions: (Round all numbers to the nearest dollar.) (a) Discuss the nature of this lease in relation to the lessee, and compute the amount of the initial lease liability. (b) Prepare a 9-year lease amortization schedule. (c) Prepare all of the lessee's journal entries for the first year. Assume straight-line depreciation.
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