On December 31, 2016, Mason's leased a delivery truck from Brad's Trucks.

Brad's paid $40,000 for the truck. Its retail value is $71,868.

The lease agreement specified annual payments of $20,000 beginning December 31, 2016, the inception of the lease, and at each December 31 through 2019. Brad's interest rate for determining payments was 11%. At the end of the four-year lease term (December 31, 2020) the truck was expected to be worth $15,000. The estimated useful life of the truck is five years with no salvage value. Both companies use straight-line depreciation.

Mason's guaranteed a residual value of $6,000. Guarantor Trinity Corporation was engaged to guarantee a residual value of $12,000, but with a deductible equal to any amount paid by the lessee ($12,000 reduced by any amount paid by the lessee). Mason's incremental borrowing rate is 9%.

A $2,000 per year maintenance agreement was arranged for the truck with an outside service firm. As an expediency, Brad's Trucks agreed to pay this fee. It is, however, reflected in the $20,000 lease payments.

Collectibility of the lease payments by Mason's is reasonably predictable and there are no costs to the lessor that are yet to be incurred. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

1. Calculate the amount Mason's would record as a leased asset and a lease liability.

2. Show how Brad's Trucks calculated the $20,000 annual lease payments.

a. 3. Calculate the amount Brad's Trucks would record as sales revenue.

4. Prepare the appropriate entries for both Mason's and Brad's Trucks on December 31, 2016

a. Record the lease for Masons

b. Record the lease payment for Masons

c. Record the lease for Brad's Trucks

d. Record cash received for Brad's Trucks

5. Prepare an amortization schedule that describes the pattern of interest expense over the lease term for Mason's.

6. Prepare an amortization schedule that describes the pattern of interest revenue over the lease term for Brad's Trucks.

7. Prepare the appropriate entries for both Mason's and Brad's Trucks on December 31, 2017.