Minimum payment (in advance) including

$5,000 executory cost $65,000/year

Lease period (beginning Jan. 1, 2013) 5 years

Economic life of asset 10 years

Estimated residual value at end of lease $75,000

Implicit rate 10% Incremental borrowing rate 10%

Cost to lessor $400,000 I

nitial direct costs $15,000

Required:

Prepare the journal entry to record the initiation of this lease (lessor)

Prepare the annual journal entry the lessor would record for this transaction