On December $31$ of Year $1,$ a lessor acquired a machine at a cost of $$35,000$ to be held for lease and classi$$ed as inventory. The machine was leased on January $1$ of Year $2,$ for $$ve years in a sales$-$type lease that requires annual payments of $$14,099$ at the end of each year. At inception of the lease, the sales value of the underlying asset was $$55,000.$ The machine will revert to the lessor at the end of the lease term, at which time the estimated residual value will be $$2,500($none of which is guaranteed by the lessee$).$ The lessor$$s implicit rate of interest is $10\%$ on the investment. The estimated fair value of the residual at lease end is $$2,500.$ Hint: Leased equipment$$s carrying value does not equal its fair value at lease commencement.

Required

a$.$ Show how the lessor computed the annual payment of $$14,099.$

b$.$ What type of lease is this to the lessor?

c$.$ Prepare a lease receivable schedule for the lessor for the $$rst two years of the lease term.

d$.$ Provide journal entries for the lessor on January $1$ of Year $2$ and December $31$ of Year$2$ and Year $3.$

e$.$ Provide the journal entry at termination of the lease on December $31$ of Year $6$ for receipt of the $$nal payment and the lease asset, assuming the estimate of residual value is con$$rmed$.$