Morgan Leasing Company signs an agreement on Jan 1, 2017, to lease equipment to Cole Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 6 years with renewal option. The equipment has an estimated economic life of 6 years. 2. The cost of the asset to the lessor is $200,000. The fair value of the asset at Jan 1, 2017 is $245,000. 3. The agreement requires equal annual rental payments of $46,000, beginning on Jan 1, 2017. 4. Collectability of the lease payments by Morgan is probable. 5. The lessor's incremental borrowing rate is 10%, and the lessee's implicit interest rate is 8% which is known to the lessor. PV table 8%, 6 periods 10%, 6 periods PV-Annuity due 4.9927 4.7908 PV- ordinary annuity 4.6229 4.3553 PV of $1 8%, in 6 periods 10%, in 6 periods Discount factor 0.6302 0.5645 Q1: What type of lease for lessee & lessor? Q2: Prepare the journal entry for lessee & lessor on Jan 1, 2017. Q3: Prepare the journal entry for lessee & lessor on Dec 31, 2017. Q4: Prepare the journal entry for lessee & lessor for the return of the leased asset at the end of the lease term, assuming that the actual residual value at the time of return is $10,000. A. If the asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $24,335, none of which is guaranteed. B. If the asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $24,335, which is guaranteed. C. If the asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $10,000 and the guaranteed residual value is $24,335. Morgan Leasing Company signs an agreement on Jan 1, 2017, to lease equipment to Cole Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 6 years with renewal option. The equipment has an estimated economic life of 6 years. 2. The cost of the asset to the lessor is $200,000. The fair value of the asset at Jan 1, 2017 is $245,000. 3. The agreement requires equal annual rental payments of $46,000, beginning on Jan 1, 2017. 4. Collectability of the lease payments by Morgan is probable. 5. The lessor's incremental borrowing rate is 10%, and the lessee's implicit interest rate is 8% which is known to the lessor. PV table 8%, 6 periods 10%, 6 periods PV-Annuity due 4.9927 4.7908 PV- ordinary annuity 4.6229 4.3553 PV of $1 8%, in 6 periods 10%, in 6 periods Discount factor 0.6302 0.5645 Q1: What type of lease for lessee & lessor? Q2: Prepare the journal entry for lessee & lessor on Jan 1, 2017. Q3: Prepare the journal entry for lessee & lessor on Dec 31, 2017. Q4: Prepare the journal entry for lessee & lessor for the return of the leased asset at the end of the lease term, assuming that the actual residual value at the time of return is $10,000. A. If the asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $24,335, none of which is guaranteed. B. If the asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $24,335, which is guaranteed. C. If the asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $10,000 and the guaranteed residual value is $24,335
