On April 1, 2020, Benintendi enters into a 5-year, non-cancelable lease with Fenway Inc for use of a hitting machine requiring payments of $20,000 every March 31 (1^st payment is due today). Fenway requires that the asset at the end of 5 years is returned with a guaranteed residual value of no less than $9,006.

The asset has a fair value of $100,000 and an 8-year useful life. Benintendi’s incremental borrowing cost is 6.5% but Fenway seeks a 4% return from this lease.

The lease has no renewal options and the asset will revert back to Fenway at the end of the 5 years.

PV of an annuity due at 4% for 5 years = 4.629895 and PV of a lump sum at 4% for 5 years is .821927

Required:

1. Determine if this lease is a financing or operating lease.
2. Calculate the present value of the lease agreement.
3. Make the original entry on both sets of books on April 1, 2020.
4. Create the amortization table for year one only.
5. Make the required March 31, 2021 journal entries for both sets of books.