Long Ltd., a private corporation adhering to ASPE, enters into a non-cancellable lease agreement on July 1, 2020, to lease equipment from Fong Ltd. The following data are relevant to the lease agreement:

1. The term of the lease is 4 years, with no renewal option. Payments of $ 126,807 are due on June 30 of each year, with the first payment due June 30, 2021.

2. The fair value of the equipment on July 1, 2020, is $ 420,000. The equipment has an economic life of 6 years with no residual value.

3. Long depreciates similar equipment it owns on the Straight-line basis.

4. Long's incremental borrowing rate is 10%. The lessee is aware that the lessor used an implicit rate of 8% in calculating the lease payments.

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Instructions

a) What type of lease this is for Long? What is your rationale?

b) Prepare the journal entries on Long's books that relate to the lease agreement for the following dates. Round all amounts to the nearest dollar. Include a partial amortization schedule.

i. July 1, 2020

ii. December 31, 2020

iii. June 30, 2021

iv. December 31, 2021