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Lockhard Corporation entered into a lease agreement on January 1, 2019, to provide Cominsky Company with a piece of equipment. The terms of the lease
Lockhard Corporation entered into a lease agreement on January 1, 2019, to provide Cominsky Company with a piece of equipment. The terms of the lease agreement were as follows:
- The lease is to be for 3 years with the rental payments of $10,521 to be made at the beginning of each year.
- The equipment has a fair value of $55,000, a book value of $40,000, and an economic life of 8 years.
- At the end of the lease term, both parties expect the equipment to have a residual value of $30,000 none of which is guaranteed.
- The lease does not transfer ownership at the end of the term, does not have a bargain purchase option, and the asset is not of specialized nature.
- The implicit is 6%, which is known by Cominsky.
- Collectability of payments is probable.
Instructions:
- Using the lease classification tests, determine the nature of this lease.
- Create the amortization schedules for Cominsky will use over the lease term.
- Create the 2019 journal entries for Cominsky.
- Create the 2019 journal entries for Loackhard.
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