On 1/1/17, Darien Company (lessor) leased a new digital printing press to Aztec Inc (lessee). Terms of the non-cancellable agreement and other relevant information appear below.

At 1/1/2017: Fair market value of press = $400,000 ($300,000 = Book Value) Expected Residual value of press at lease end = $50,000

The lease is a 6 year non-cancelable lease beginning on 1/1/17.

Lease payments of $73,806 are payable January 1 each year.

Aztec Inc assumes all costs and risks of ownership, including the fact that it guarantees the residual value.

The lease contains no renewal or bargain purchase option, and the press reverts to Darien Company at the end of 2022

The asset has an estimated economic life of 9 years. Both companies depreciate assets using the straight-line method.

Dariens implicit rate is 8% (stated in the lease agreement Aztec signed). The Aztecs incremental borrowing rate is 12%.

Both companies have a December 31 fiscal year-end.

The collectibility of the lease payments is reasonably assured & there are no uncertainties about costs for the lessor

On 12/31/2022, the actual value of the press is $48,700. PVF-AD6,8%= 4.99271; PVF6,8%=0.63017

REQUIRED:

1. Demonstrate (use words and numbers) how the lessor determined the annual lease payment.

2. What type of lease is this for the lessee? Explain.

3. Complete the missing elements (gray shaded blocks) in the amortization schedule for the lessee.