On 1/1/17, a lessee (tenant) signed a noncancellable net leasewith a lessor to use the lessor’s machinery. The following datapertain to this lease:

? Lease term is 3 years.

? Annual lease payments = $100,000 each, payable 12/31/17,12/31/18, and 12/31/19.

? Machine is returned to the lessor at the end of the leaseterm.

? Estimated economic useful life of the leased machine is 4years.

? The expected residual value of the machine at the end of thelease term is $40,000; the lessee guarantees $30,000 of thatresidual value.

? Executory costs = $1,000 for maintenance, paid with each leasepayment.

? Fair value of leased machine at the inception of the lease =$285,000.

? Lessor’s carrying value of the machine = $250,000 ($300,000initial cost - $50,000 accumulated depreciation to date).

? Lessee’s incremental borrowing rate is 10%.

? Lessor’s implicit interest rate in the lease is 9%, and is notknown to the lessee.

? The leased machine has no alternative use to the lessor at theend of the lease term.

? Collection of payments from the lessee is probable andreasonably assured.

Additional data: (round all numerical answers to the nearestwhole dollar)

3 periods 4 periods

Present value (PV) of 1 at 10% 0.7513 0.6830

PV of 1 at 9% 0.7722 0.7084

PV of an annuity due of 1 at 10% 2.7355 3.4866

PV of an annuity due of 1 at 9% 2.7591 3.5313

PV of an ordinary annuity of 1 at 10% 2.4869 3.1699

PV of an ordinary annuity of 1 at 9% 2.5313 3.2397

Required: Answer question #’s 92 through 103, which follow,using the above data:

92. What is the amount of the present value of lease paymentsused in the lease classification test?

93. According to ASC Topic 842, how should the lessor classifythis lease?

94. What is the reasoning for this lease classification?

95. What is the amount of the present value of any unguaranteedresidual value in this lease?

96. What is the amount of the lessor’s net investment in thislease?

97. What amount should the lessor record as sales revenue inthis lease?

98. What amount should the lessor record as cost of goods soldin this lease?

99. What is the amount of the lessor’s selling profit (or loss)in this lease?

100. Prepare an amortization table for the leaseinvestment/principal using the effective interest method.

101. Prepare the lessor’s journal entries at the inception ofthe lease (1/1/17).

102. Prepare the lessor’s journal entries during the lease(12/31/17 and 12/31/18).

103. Prepare the lessor’s journal entries at the end of thelease term (12/31/19).