On December 31, 2018, Yard Art Landscaping leased a delivery truck from Branch Motors. Branch paid $39,000 for the truck. Its retail value is $58,000. The lease agreement specified annual payments of $15,500 beginning December 31, 2018, the beginning of the lease, and at each December 31 through 2021. Branch Motors interest rate for determining payments was 10%. At the end of the four-year lease term (December 31, 2022) the truck was expected to be worth $16,000. The estimated useful life of the truck is five years with no salvage value. Both companies use straight-line amortization or depreciation. Yard Art guaranteed a residual value of $4,000. Yard Arts incremental borrowing rate is 9% and is unaware of Branchs implicit rate. A $2,000 per year maintenance agreement was arranged for the truck with an outside service firm. As an expedient, Branch Motors agreed to pay this fee. It is, however, reflected in the $15,500 lease payments. Required: 1. How should this lease be classified by Yard Art Landscaping (the lessee)? 2. Calculate the amount Yard Art Landscaping would record as a right-of-use asset and a lease liability. 3. How should this lease be classified by Branch Motors (the lessor)?

5. Calculate the amount Branch Motors would record as sales revenue.

(These are my guesses, not sure if they are right)

Finance lease 1. This lease should be classified by Yard Art as a 2. The amount that Yard Art would record as a right-of-use asset and a lease liability would be 54,735 $ Finance lease 3. This lease should be classified by Branch Motors as a 5. The amount that Branch Motors would record as sales revenue would be 13,500