Needed Information:

-The equipment has an estimated useful life of 13 years. -There is no purchase option. Transfer of ownership to Michael is not stipulated in the lease contract. -The fair value to Thomas (lessor) at the inception of the lease was $4,000,000. Lessor's cost was $3,775,000. Sales commissions were $2,500. -Michael's incremental borrowing rate is 10%. The implicit annual rate in the lease (known to Michael) is 8%. - Michael and Thomas use straight-line depreciation. -The lease requires rental payments of $266,000, payable on 1/2/20 and subsequently on 6/30 and 12/31. -Michael guarantees that Thomas will realize $200,000 from selling the asset at the end of the lease. The expected residual value is $120,000.

- ROU Asset $3,796,139 but for classification $3,850,906. Lease receivable $5,520,000 = [$266,000 x 20 ]+ $200,000

Create a well-labeled amortization table and the entries for Thomas and Michael for 2020 and 2021. *Tip Lessor will being its schedule with $3,850,906 because lessor will receive full $200,000 even if residual were unguaranteed. Lessee will start its schedule with $3,796,139 because probable only paying $80,000 for residual.